VIP Road Chartered Accountants Association

Gist of Important Circulars and Instructions

Sr.	Circular/Instruction No. & Date	Reference of Magazine	Brief Contents
1.	Circular No. 18D dated 15-7-1963		A question has been raised where an assessee who was in default pays up the tax due before he is given a hearing by the AO, whether it would be proper to levy penalty on the ground that even though there are no arrears on the date of hearing, a default had actually been committed on the due date. The Board has decided that no penalty should be levied if at the time of appearance before the AO in connection with hearing given under section 221(1), the assessee proves that the tax had already been paid.
1.	Circular No. 18D dated 15-7-1963		However, this Circular stands superseded by subsequent Circular No. 262 dated 14-9-1979: 131 ITR (St) 71
2.	Instruction No. 96 dated 21-8-1969	Taxmann’s DTC Vol. 3 Page 1-3496	Collection of disputed tax to be kept in abeyance till the disposal of the appeal where the assessed income is substantially higher.
2.	Instruction No. 96 dated 21-8-1969	Taxmann’s DTC Vol. 3 Page 1-3496	However, this Instruction stands superseded by Instruction No. 1914 dated 2-12-1993 (Refer Page 76 of this Issue)
3.	Board’s Letter No. Coord/RDTAC/78/144-32 dated 31-7-1979	Vol. 52-S/1564-CTR Tax Compendium	Issue of Tax Recovery certificate only after giving credit for pre-paid taxes, appeal effect, etc.
4.	Circular No. 334 dated 3-4-1982	135 ITR (St) 10	Where an assessment order is cancelled under section 146 or set aside by the appellate/ revisional authority and the cancellation/ setting aside becomes final, no interest under section 220(2) can be charged pursuant to original Demand Notice. Where the assessment is reframed, interest can be charged only after 35 days (now, not more than 30 days) from the date of service of Demand Notice pursuant to such fresh assessment order. Where the assessment order is either varied or even set aside by one appellate authority but, on further appeal, the original assessment order is restored either in part or wholly, the interest payable under section 220(2) will be computed with reference to the due date reckoned from the original Demand Notice and with reference to tax finally determined.
5.	Circular No. 530 dated 6-3-1989	178 ITR (St) 240	Assessee not to be treated as assessee in default in respect of amounts under section 220(6) of the Act.
6.	Circular No. 551 dated 23-1-1990	183 ITR (St) 7	Explanatory Notes on the Provisions of Direct Tax Laws (Amendment)Act 1987 streamlining the procedure for recovery of tax.
7.	Circular No. 589 dated 16-1-1991	187 ITR (St) 79	While passing order under section 220(6), AO should consider all relevant factors having a bearing on the tax demand and pass a speaking order.
8.	Circular No. 636 dated 31-8-1992	198 ITR (St) I	Rule 68B of second Schedule provision of limitation for sale of immovable property attached.
9.	Instruction No. 1914 dated 2-12-1993	Full text on Page No. 76 of this Issue	Guidelines on disposition of stay petition and stay of demand.
10.	Instruction No. 1936 dated 21-3-1996	Full text on Page No. 78 of this Issue	Tax payment in part first adjustment towards tax due and not interest under section 220(2).
11.	Instruction No. 1944 dated 27-8-1997	Full text on Page No. 78 of this Issue	Interest under sections 201(1A) and 220(2) not to be charged simultaneously. Interest under section 220(2) is chargeable only where tax and/or interest is not paid within stipulated time

FULL TEXT OF IMPORTANT INSTRUCTIONS

Recovery of outstanding tax demands
[Instruction No. 1914 F. No. 404/72/93 ITCC dated 2-12-1993 from CBDT]

The Board has felt the need for a comprehensive instruction on the subject of recovery of tax demand in order to streamline recovery procedures. This instruction is accordingly being issued in supersession of all earlier instructions on the subject and reiterates the existing Circulars on the subject.
1. The Board is of the view that, as a matter of principle, every demand should be recovered as soon as it becomes due. Demand may be kept in abeyance for valid reasons only in accordance with the guidelines given below :
  1. Responsibility:
    1. It shall be the responsibility of the Assessing Officer and the TRO to collect every demand that has been raised, except the following : (a) Demand which has not fallen due;(b) Demand which has been stayed by a Court or ITAT or Settlement Commission;(c) Demand for which a proper proposal for write-off has been submitted;(d) Demand stayed in accordance with paras B & C below.
    2. Where demand in respect of which a recovery certificate has been issued or a statement has been drawn, the primary responsibility for the collection of tax shall rest with the TRO.
    3. It would be the responsibility of the supervisory authorities to ensure that the Assessing Officers and the TROs take all such measures as are necessary to collect the demand. It must be understood that mere issue of a show cause notice with no follow-up is not to be regarded as adequate effort to recover taxes.
  2. Stay Petitions:
    1. Stay petitions filed with the Assessing Officers must be disposed of within two weeks of the filing of petition by the tax- payer. The assessee must be intimated of the decision without delay.
    2. Where stay petitions are made to the authorities higher than the Assessing Officer (DC/CIT/CC), it is the responsibility of the higher authorities to dispose of the petitions without any delay, and in any event within two weeks of the receipt of the petition. Such a decision should be communicated to the assessee and the Assessing Officer immediately.
    3. The decision in the matter of stay of demand should normally be taken by Assessing Officer/TRO and his immediate superior. A higher superior authority should interfere with the decision of the AO/TRO only in exceptional circumstances; e.g., where the assessment order appears to be unreasonably high-pitched or where genuine hardship is likely to be caused to the assessee. The higher authorities should discourage the assessee from filing review petitions before them as a matter of routine or in a frivolous manner to gain time for withholding payment of taxes.
  3. Guidelines for staying demand:
    1. A demand will be stayed only if there are valid reasons for doing so. Mere filing an appeal against the assessment order will not be a sufficient reason to stay the recovery of demand. A few illustrative situations where stay could be granted are:
      It is clarified that in these situations also, stay may be granted only in respect of the amount attributable to such disputed points. Further where it is subsequently found that the assessee has not co-operated in the early disposal of appeal or where a subsequent pronouncement by a higher appellate authority or court alters the above situation, the stay order may be reviewed and modified. The above illustrations are, of course, not exhaustive.
    2. In granting stay, the Assessing Officer may impose such conditions as he may think fit. Thus he may — a. require the assessee to offer suitable security to safeguard the interest of revenue;b. require the assessee to pay towards the disputed taxes a reasonable amount in lump sum or in instalments;c. require an undertaking from the assessee that he will co-operate in the early disposal of appeal failing which the stay order will be cancelled.d. reserve the right to review the order passed after expiry of a reasonable period, say up to 6 months, or if the assessee has not co-operated in the early disposal of appeal, or where a subsequent pronouncement by a higher appellate authority or court alters the above situations;e. reserve a right to adjust refunds arising, if any, against the demand.
    3. Payment by instalments may be liberally allowed so as to collect the entire demand within a reasonable period not exceeding 18 months.
    4. Since the phrase "stay of demand" does not occur in section 220(6) of the Income-tax Act, the Assessing Officer should always use in any order passed under section 220(6) [or under section 220(3) or section 220(7)], the expression that occurs in the section viz., that he agrees to treat the assessee as not being default in respect of the amount specified, subject to such conditions as he deems fit to impose.
    5. While considering an application under section 220(6), the Assessing Officer should consider all relevant factors having a bearing on the demand raised and communicate his decision in the form of a speaking order.
  4. Miscellaneous:
    1. Even where recovery of demand has been stayed, the Assessing Officer will continue to review the situation to ensure that the conditions imposed are fulfilled by the assessee failing which the stay order would need to be withdrawn.
    2. Where the assessee seeks stay of demand from the Tribunal, it should be strongly opposed. If the assessee presses his application, the CIT should direct the departmental representative to request that the appeal be posted within a month so that Tribunal’s order on the appeal can be known within two months.
    3. Appeal effects will have to be given within 2 weeks from the receipt of the appellate order. Similarly, rectification application should be decided within 2 weeks of the receipt t hereof. Instances where there is undue delay in giving effect to appellate orders, or in deciding rectification applications, should be dealt with very strictly by the CCITs/CITs.
2. The Board desires that appropriate action is taken in the matter of recovery in accordance with the above procedure. The Assessing Officer or the TRO, as the case may be, and his immediate superior officer shall be held responsible for ensuring compliance with these instructions.
3. This procedure would apply mutatis mutandis to demands created under other Direct Taxes enactments also.
Part payment of outstanding demand — Clarification regarding adjustment thereof
[Instruction No. 1936 - F. No. 404/62/95-ITCC dated 21-3-1996 from CBDT]
A question has been referred to the Board seeking clarification that :

"If the tax paid by the assessee is not sufficient to cover the total demand then should it first be adjusted against the interest."
1. The Board have been informed that the Assessing Officers are not following any uniform procedure in this regard. While one set of Assessing Officers are first adjusting the part payment received from the assessee against the tax due, the others are adjusting the part payments towards the outstanding interest due under section 220(2). The matter was referred to the Ministry of Law for their opinion and they have also observed that both the views are possible.
2. For the sake of uniformity the Board have decided that part payment received from assessee should first be adjusted towards the tax due and not the interest calculated under section 220(2) of the Income-tax Act.
3. The aforesaid instruction may be brought to the notice all officers working under your charge.
Clarification regarding charging of interest u/ss. 201(1A) and 220(2) of Income-tax Act
[Instruction No. 1944 — F. No. 275/14/97-IT(B) dated 27-8-1997 issued by CBDT]
The Central Board of Direct Taxes have received several representations seeking clarification about the simultaneous charging of interest u/s. 201(1A) and u/s. 220(2) of the Income-tax
Act, 1961.
1. After due consideration, it is hereby clarified that for non-deduction of tax at source or failure to pay the tax after deducting the same, interest u/s. 201(1A) is chargeable. If the tax and/or interest is not paid within the stipulated time, then interest u/s. 220(2) also becomes chargeable.