VIP Road Chartered Accountants Association

Stay of Recovery

In an era where to recover maximum tax within minimum time has become the basic aim of the department while that of the assessee is to do reverse, stay of recovery has gained unprecedented significance; specially with the renewed momentum adopted by the department recently where coercive recovery proceedings are no longer the exercises to be undertaken only at the end of the year, but to be vigorously pursued every quarterly. Another reason for stay proceedings assuming significance is arbitrary and high pitched assessments framed by the Assessing Officers where the concerned assessees are confronted with huge demands to be paid within 30 days; in some cases, even this period is curtailed to seven days or so.

In this article, some of the important aspects concerning stay proceedings are discussed, though by no means it is exhaustive. This is because the topic ‘recovery and stay proceeding’, by itself, can be subject matter of a special story. Since this month’s special story is on "Appeals", the discussion is confined to the stay proceedings that have some connection with appeal proceedings before CIT(A)/Tribunal.

By Assessing Officer
Section 220(6) of the Income-tax Act, 1961 ["the Act"] provides for first stay proceeding so far as appeal is concerned. The same is reproduced herein below for ready reference.

"When tax payable and when assessee deemed in default.

220. (1)
….

(2)
…….

(3)
…….

(4)
.….

(5)
…….

(6)
Where an assessee has presented an appeal under section 246 or section 264A the Assessing Officer may, in his discretion and subject to such conditions as he may think fit to impose in the circumstances of the case, treat the assessee as not being in default in respect of the amount in dispute in the appeal, even though the time for payment has expired, as long as such appeal remains undisposed of.’’

As such, in a case where first appeal is preferred by the concerned assessee, the discretion is given to the concerned officer to not to treat the assessee as in default. This, by necessary implications, for all practical purposes, means granting stay of recovery till disposal of the first appeal. However, in this regard, the following points are worth noting :—

This discretion is available to, and to be exercised by, only the concerned assessing officer.
It can be exercised only pending first appeal filed by the concerned assessee u/s. 246A of the Act. Strictly construed, therefore, such discretion is not available if second appeal is pending or if rectification or revision application is pending. As such, concession, if at all granted to the assessee, comes to an end automatically on disposal of the first appeal.
The grant of stay is not a matter of right but it is at the discretion of the concerned Assessing Officer and he can put such conditions as he may think fit while exercising such discretion.
Such discretion is available only with respect to the amount in dispute in the appeal. In other words, it is not available with respect to the amount of the additions, which the assessee has not challenged in the appeal. For the later part of the tax demand, or tax demands in other cases, the concerned assessee may take recourse to other provisions of the Act, like, Sec. 220(3), etc.

However, at the same time, it should be noted that once the concerned officer has exercised his discretion and has decided to grant such stay, thereafter he cannot arbitrarily grant stay only up to a certain date. He has to wait till the first appeal is disposed of, as long as there is no failure or laches on the part of the concerned assessee.

By Commissioner of Income-tax (Appeals)
As will be clear from the discussion in the preceding articles on the nature of right of appeal, it is now firmly laid down legal position that right of appeal granted to a subject is to be constructed liberally and is required to be given liberal interpretation since it is remedial in nature. In view of this, though mere filling, or pending, of an appeal does not constitute automatic stay of the order under challenge or of recovery of the tax under dispute in such appeal, the first appellate authority has inherent and incidental power, for effective exercise of the appellate power, to grant stay of collection of tax pending disposal of the appeal before him.
This is an independent and inherent power to grant stay pending the appeal, independent of the power of the assessing authority u/s. 220(6) to treat the assessee as not in default pending the appeal. This position is based on the reasoning that the appellate jurisdiction conferred to the first appellate authority u/s. 251 of the Act impliedly grants power of doing all such acts or employing such means as are essentially necessary for its effective exercise and such statutory conferment of the appellate power carries with it the duty and obligations as well, in proper cases, to make or grant orders for stay of the order under challenge in appeal or staying of any or all further proceedings pursuant to the said order, pending disposal of the appeal before the said appellate authority. The fact that the powers have been conferred on the Assessing Officer under section 220(6) and/or on the Tax Recovery Officer under section 225(1) is no substitute to the power of stay vested in the appellate authority, which power is a necessary adjunct to the very powers of the appellate authority. Some of the judicial pronouncements on this issue are: -
1. Prem Prakash Tripathi vs. CIT [(1994) 208 ITR 461, 463- 64 (All)]
2. Paulsons Litho Works vs. ITO [(1994) 208 ITR 676, 689 (Mad)]
3. Tin Mfg. Co. of India vs. CIT [(1995) 212 ITR 451, 452 (All)]
4. Bongaigaon Refinery vs. CIT [(1999) 239 ITR 871, 873 (Gauh)]
Unfortunately, it seems that this well-settled legal position, approved and accepted by many courts, is not recognized or respected by the first appellate authorities as one hardly comes across a case where such power is exercised by a first appellate authority.
By Commissioner of Income-tax (Administration)
CIT (Administration) being a higher officer to the Assessing Officer or Tax Recovery Officer in the hierarchy of the officers under the scheme of the Act, he has all remedial, corrective as well as inherent powers in the matter of grant of stay of recovery. Like any other quasi-judicial authority, even CIT (Adm.) also has to exercise his discretion in conformity with the well-established judicial norms. However, in practice, one comes across many cases where even such discretion is not exercised properly by one of the higher-ranking officers in the department. In fact, this has been taken judicial note of by the Hon’ble Bombay High Court in the case of KEC International Ltd. [(2001) 251 ITR 158] where the Hon’ble Court was compelled to begin its judgment with the following observation —
"In a large number of matters, this court finds orders being passed perfunctorily by the department only with the idea of effecting recovery before March 31, though such orders could have been passed earlier in detail and after recordings proper reasons."
In this case, pending appeal before first appellate authority, the assessee had preferred stay application before the A.O., who rejected the request without giving any reason. Aggrieved by such rejection, the assessee approached CIT (Adm.), who also summarily dismissed the stay petition without giving any reason. This led the Hon’ble High Court to pass the above remarks and also to, ultimately, lay down the following parameters that are required to be followed by the authority in cases where a stay application is made by an assessee pending appeal to the first appellate authority.
"Parameters: –
1. While considering the stay application, the authority concerned will at least briefly set out the case of the assessee.
2. In cases where the assessed income under the impugned order far exceeds returned income the authority will consider whether the assessee has made out a case for unconditional stay. If not, whether looking to the questions involved in appeal, a part of the amount should be ordered to be deposited for which purpose, some short prima facie reasons could be given by the authority in its order.
3. In cases where the assessee relies upon financial difficulties, the authority concerned can briefly indicate whether the assessee is financially sound and viable to deposit the amount if the authority wants the assessee to so deposit.
4. The authority concerned will also examine whether the time to prefer an appeal has expired. Generally, coercive measures may not be adopted during the period provided by the statute to go in appeal. However, if the authority concerned comes to the conclusions that the assessee is likely to defeat the demand, it may take recourse to coercive action, which brief reasons, maybe indicated in the order.
5. We clarify that if the authority concerned complies with the above parameters while passing orders on the stay application, then the authorities on the administrative side of the department like respondent No. 2 herein need not once again give reasoned order. "
The Hon’ble Court, however, clarified that the above parameters are not exhaustive and are only recommendatory in nature.

By the Tribunal

Nature of the jurisdiction:–
As discussed earlier, it is now very well settled legal position that powers conferred by an enabling statute include not only such as are expressly granted but also, by implication, all powers which are reasonably necessary for the accomplishment of the objective intended to be secured. This is based on the firmly established rule that an express grant of statutory power carries with it, by necessary implication, the authority to use all reasonable means to make such grant effective. The position that where an Act confers a jurisdiction, it impliedly also grants the power of doing all such acts, or employing such means, as are essentially necessary to the execution is also accepted in India. [See, ITO vs. M. K. Mohammed Kunhi (1969) 71 ITR 815, 819 (SC)]. The Supreme Court, in the context of Customs, Excise and Gold (Control) Appellate Tribunal [CEGAT], has summarized the Indian view on this position in the case of Union of India vs. Paras Laminates Pvt. Ltd. [(1990) 186 ITR 722, 726 (SC)] very aptly by observing that certain powers are recognized as incidental and ancillary, not because they are inherent in the Tribunal, nor because its jurisdiction is plenary, but because it is the legislative intent that the power which is expressly granted in the assigned field of jurisdiction is efficaciously and meaningfully exercised. In fact, the Andhra Pradesh High Court in the case of State of A. P. vs. V.B.C. Fertilizers & Chemicals Ltd. (1994) 95 STC 14, 15, 16 (AP)] has extended this logic and held that the power of the Tribunal is extended to pass interlocutory orders in the interest of justice, pending disposal of appeal before it, including the power to grant stay of further proceeding, pursuant to the order of remand, under which the assessing authority has to take further proceeding. In view of this basic proposition on the inherent powers of appellate Tribunal, it has been held that the power to grant of stay or to give suitable directions is one of such ancillary and incidental powers of the Tribunal.
Here it should be noted that this proposition regarding wide powers of Tribunal applies only where there is no express provision, one way or other, in this regard. In other words, this doctrine of incidental and implied powers may not hold good when a specific provision is incorporated in the statute debarring or placing fetters on the powers of the appellate authorities in the matter of grant of stay.
When and who can approach :–
Any assessee who has filed appeal before the Tribunal and whose appeal is pending disposal can approach the Tribunal for stay of recovery of demand arising out of the additions that are challenged in the appeal. As such, normally, pending an appeal is sine qua non for preferring stay application before the Tribunal.

Procedure :–
As far as the Income Tax Appellate Tribunal [ITAT] is concerned, a specific rule, Rule 35A, is incorporated in Income-tax (Appellate Tribunal) Rules, 1963 to deal with the manner in which the stay application before the Tribunal is to be filed. For ready reference, the same is reproduced hereunder: -

"Procedure for filing and disposal of Stay Petition

35A. (1) (a)
Every application for stay of recovery of demand of tax, interest, penalty, fine, estate duty or any other sum shall be presented in triplicate by the applicant in person, or by his duly authorized agent, or sent by registered post to the Registrar or the Assistant Registrar, as the case maybe, at the headquarters of a Bench or Benches having jurisdiction to hear the appeals in respect of which the stay application arises.

(b)
Separate application shall be filed for stay of recovery of demands under different enactments.

(2)
Every application shall be neatly typed on one side of the paper and shall be in English and shall set forth concisely the following : —

(i)
short facts regarding the demand of the tax, interest, penalty, fine, estate duty or any other sum, recovery of which is sought to be stayed;

(ii)
the result of the appeal filed before the Appellate Assistant Commissioner, if any;

(iii)
the exact amount of tax, interest, penalty, fine, estate duty or any other sum demanded, as the case may be, and the amount undisputed therefrom and the amount outstanding;

(iv) the date of filing the appeal before the Tribunal and its number, if known;

(v) whether any application for stay was made to the revenue authorities concerned, and if so the result thereof (copies of correspondence, if any, with the revenue authorities to be attached)

(vi) reasons in brief for seeking stay;

(vii) whether the applicant is prepared to offer security, and if so, in what form;

(viii) prayers to be mentioned clearly and concisely (stating exact amount sought to be stayed);

(ix) the contents of the application shall be supported by an affidavit sworn by the applicant or his duly authorised agent;

(3)
An application which does not conform with the above requirements is liable to be summarily rejected."

As such, indirectly, jurisdiction of the Tribunal to entertain stay applications is accepted and recognised by this specific incorporation of the rule. For the administrative purpose, a Form is prescribed (reproduced as Annexure ___ to this article for reference). Generally, a stay application should contain :—

(i)
The Form along with its annexure, if any:–

This Form requires the assessee to give basic details, like, name and address of the applicant, break up of the demand, viz., tax, interest u/ss. 234A, 234B and 234C and interest u/s. 220, less tax already paid, etc., the details regarding the applications, as well as their outcome, of stay preferred before the lower authorities like A.O./ CIT, etc. The most important part of the Form is the column requiring to state the reasons for seeking stay. Usually, this is given by way of a separate annexure. This separate annexure should contain, briefly, the facts regarding the applicant’s appeal before the Tribunal touching upon, in brief, the merits of the case. The annexure should then narrate financial position of the applicant. Lastly, it should contain the reasons for seeking the stay.

(ii)
A copy of stay applications preferred before the lower authorities and their rejection letters, if any.

(iii)
Documents highlighting financial position of the applicant as on the date of the application.

(iv)
Any other document that may have relevance to the stay application.

(v)
Affidavit of the applicant in support of the stay application.

(vi)
The challan evidencing payment of the prescribed fee of Rs. 500.

This application is to be submitted in triplicate. As far as the Mumbai Bench of the ITAT is concerned, normally, at the time of submission of stay application itself, the date of hearing is given. As per the latest policy, the hearing, normally, is kept on 1st Friday of the month. However, in exceptional circumstances, hearing for a stay application can be granted on any other normal working day, upon request so made by the applicant and upon the Tribunal being satisfied about the urgency.

Whether rejection letter from CIT must:–
As Tribunal has inherent jurisdiction to entertain stay application when the appeal is pending before it, it is irrelevant whether the applicant has exhausted the remedies at the lower stage or not. On the other hand, there is no specific provision or bar in the Act or in the Rules putting any restriction on exercise of such inherent power without obtaining rejection letter of CIT. In fact, there are many decisions of High Courts and Tribunals, which have gone to the extent of observing that the Tribunal having inherent power to grant stay, it will be failing in its duty if it refuses to exercise this power till CIT is not approached.
However, as far as the Mumbai Bench of ITAT is concerned, in the case of RPG Enterprises vs. Dy. CIT [(2001) 251 ITR (A.T.) 20], the Bench, though recognised the unfettered powers of the Tribunal in the matter of entertaining stay applications and disposal thereof, has opined that obtaining rejection letter from CIT has been recognised practice for two reasons:
1. For better understanding of the facts and also to give opportunity to the Department to put its view in the matter of stay applications; and
2. Even CIT may grant stay upon such application.
As such, as far as Mumbai Bench of ITAT is concerned, normally, rejection letter of the CIT is insisted upon before a stay application is taken up for hearing. However, in exceptional circumstances, such stay application can be taken up for hearing without waiting for rejection letter from CIT if, for example, the department is not responding the urgency and, at the same time, is going ahead with coercive recovery proceedings. In such a situation, either the Tribunal can go ahead with the stay application filed before it or it can direct the concerned CIT to dispose of the stay application filed by the applicant before it and, pending that, the Tribunal may grant interim stay.
Pending stay hearing and order:–
Though there is no provision in the Act or the Rules automatically debarring the Department from going ahead with further coercive recovery proceeding against the assessee, pending hearing of his stay application before the Tribunal, normally, it is excepted that the department refrains itself from taking further coercive measure, at least still stay application of the applicant is disposed of by the Tribunal. This is based on the doctrine of legitimate expectation, specially when though such action cannot be termed illegal, it has touches of irrationality and smacks of procedural impropriety. Such action also would indicate the lack of faith in judicial process on the part of the authority empowered to recover tax through coercive measures if such authority proceeds to do so without waiting for order of the higher forum. In this connection reference can be made to the decision of Mumbai Tribunal in the case of Maharashtra State Electrical Board vs. Jt. CIT [(2002) 81 ITD 299 (Mum)].
It is, therefore, desirable that immediately after filing stay application before the Tribunal, the concerned applicant forwards a copy of the same to the concerned Assessing Officer/Tax Recovery Officer / Commissioner of Income-tax, by way of information and intimation.
Types of order:–
If a strong prima facie case is made out, the Tribunal may grant absolute stay of recovery. However, more often than not, the Tribunal insists some payment subject to which the stay would be granted. In some cases, the Tribunal may insist for, or be satisfied with, offer of adequate securities. The Tribunal may also put some other conditions. In any case, whether to insist any further payment or security or not and, if yes, the amount of such payment or the nature of such security etc. are the matters that are at absolute discretion of the Tribunal, to be decided depending upon facts of each case. However, it should be appreciated that while granting conditional stay, the conditions imposed cannot be onerous so as to defeat the very purpose to make the stay application. In other words, the terms should be reasonable and not harshly excessive. If stay is granted, [absolute or conditional] usually, the appeal of the applicant is fixed for hearing within two to three months. In the order of the stay, either the date of the first hearing itself is mentioned or the month in which the hearing would be taken is mentioned. In both the cases, a formal notice follows. It should be noted that as a matter of course, a condition is put that the applicant will not seek any adjournment for his appeal.
Stay of other proceedings:–
Generally, by ‘’stay proceedings’’, what is understood is stay of recovery proceeding only. However, in exceptional cases, the Tribunal is not debarred from passing orders granting stay of other proceeding also. For example, in a case where an appeal against a revision order u/s. 263 is pending before it, the Tribunal may grant stay of assessment proceeding that is taken up or likely to be taken up pursuant to the revision order. The Tribunal may, in such case, though allow such assessment proceeding to continue, put a condition that no recovery proceeding would be taken up pursuant to such assessment order till the appeal against the revision order is disposed of. In such a case, such appeal is taken up for hearing on priority basis within 2/3 months to safeguard interest of the Revenue.
Early hearing:–
Many times, the Tribunal may not be satisfied about the reasons canvassed before it by the applicant in support of his request to grant stay of recovery proceedings. Nonetheless, looking at the facts and the circumstances of the case, the Tribunal may be inclined to grant out of the turn hearing that is, early hearing of the appeal without granting stay. In other words, the appeal of the applicant is taken up for hearing within 2/3 months and the applicant need not wait for his appeal to be heard in normal course which, as at present, takes about around 5 years to come up for hearing in case of appeals where assessed income is more than Rs. 5 lakhs. It should be noted here that even such order for early hearing cannot be got by mere asking. Even for this, a prima facie case is required to be made out. In such a case, as far as recovery proceedings are concerned, since no stay is granted by the Tribunal, technically, the Department is not debarred from going ahead with further recovery proceedings. However, it is left to the concerned Assessing Officer/Tax Recovery Officer/CIT to take into the consideration this factor of hearing of the appeal of the assessee having fixed within 2/3 months into consideration while taking further course of actions. Normally, it is expected that, pending such appeal, at least extreme measures of recovery, like auction of the attached properties or assets are not taken.
Refund:–
In an extreme case, where it is shown that pending stay application before the Tribunal, the Department coercively recovered the money from the concerned assessee which action was mala fide, the Tribunal, exercising its inherent jurisdiction, has power to undo the wrong done by the revenue authority and this includes power to order refund of the monies that were recovered by the Department coercively in arbitrary and mala fide exercise of the power. Reference in this regard can be made to the decision of the Mumbai Bench of the ITAT in case of RPG Enterprises vs. Dy. CIT [(2001) 251 ITR (A.T.) 20 (Mum)].
Power for extension:–
The Finance Act, 2001, with effect from 1-6-2002, has inserted a proviso to sub-section (2A) of sub-section 254 of the Act, providing that the Tribunal shall dispose of the appeal, in which stay is granted, within 180 days from the date of such stay order and if such appeal is not so disposed of within this period then the stay order shall stand vacated after expiry of this period. However, it should be noted that even after this proviso, there is no bar on the Tribunal to grant extension of the stay or to grant a fresh stay on expiry on this period, if the facts and the circumstances so demand. This proviso cannot be construed as curtailing the powers of the Tribunal to grant further or fresh stay in a deserving case, where the delay was not due to any laches or neglect on the part of the assessee. Reference, in this regard, may be made to the Delhi Tribunal decision in the case of Centre for Women’s Development Studies v/s. Dy. Director of Income Tax [(2002) 257 ITR (AT) 60 (Del)]

Discretion: How to be exercised
Though there is a catena of judicial pronouncements on the issue of how a discretionary power is required to be exercised by a quasi-judicial authority, in general, and in cases concerning stay applications, in particular, the parameters that emerge from all these cases can very briefly summarised as follows :—

General :–
It is now well-settled principle of law, that whenever a quasi-judicial authority is vested with the power to exercise his discretion in the matter concerning assessee, such discretion cannot be exercised arbitrarily, mechanically or without application of mind. In fact, whenever the occasion demands, it becomes duty of the authority to exercise such discretion in favour of the assessee in the interest of justice. In other words, the discretion is required to be exercised judiciously and judicially. As aptly analysed in the famous treatise "Maxwell on Interpretation of Statutes": "according to his discretion" means, it has been said, according to the rules of reason and justice, not private opinion, according to law and not humour; it is to be not arbitrary, vague and fanciful, but legal and regular; to be exercised, not capriciously, but on judicial grounds and for substantial reasons. And it must be exercised within the limits to which an honest man competent to the discharge of his office ought to confine himself, that is, within the limits and for the objects intended by the Legislature. These dicta maybe summed up in the statement of Lord Esher, that the discretion must be exercised without taking into account any reason, which is not a legal one. If people who have to exercise a public duty by exercising their discretion take into account matters, which the courts consider not to be proper for the guidance of their discretion, then in the eye of the law, they have not exercised their discretion."
In nutshell, it can be said — in the words of Supreme Court in case of Hindalco Industries Ltd. vs. Union of India [(1994) 2 SCC 594, 599] — the discretion is to be exercised with circumspection consistent with justice, equity and good conscience, keeping always the given facts and circumstances of the case.
This further means that the order should be objective and in accordance with the principles of natural justice and the exercise of the discretion should be real and honest and also should not to be illusory, dishonest or for corrupt, mala fide and ulterior purpose or object. This is because whenever a statute confers power, it is indisputable that that power is conferred to achieve some object. And the power has to be exercised towards achieving that object. While exercising the power, the authority on whom the power is conferred must be guided by the consideration whether, by exercise of the power, the object sought to be achieved while conferring the power would be achieved or not. Exercise of discretionary power stands on the same footing. Whenever a court or authority is invested with discretionary power, it is implicit therein that the power must be exercised reasonably, meaning thereby in a reasonable manner, and it must be exercised for the purpose for which it is conferred. [See, Wood Polymer Ltd., In re: [(1977) 109 ITR 177, 184 – 85 (Guj)]
Specific : Cases concerning stay :–
This also means that, in case of exercise of discretion while entertaining a stay application, the officer is required to consider all aspects of the matter and is bound to apply his mind to relevant factors and circumstances, like the assessment history of the assessee, his conduct and co-operation in relation to the department, points raised in the appeal, chances of recovery in case the appeal is dismissed, the hardship to the assessee by insistence on immediate payment and the like. He has also to remember that he is not the final arbiter of the disputes involved but only the first amongst the statutory authorities. Questions of fact and of law are open for decision before the two appellate authorities, both of whom possess plenary powers. In exercising his power, the Assessing Officer should not act as a mere tax-gatherer but as a quasi-judicial authority vested with the power of mitigating hardship to the assessee.
Refusal to exercise the discretion :–
It is common experience that in most of the cases, the application of stay is summarily rejected by the A.O. Impression gained is that the A.O. is not expected or supposed to grant stay. However, that is not the case, as will be evident from the above discussion. It is; in fact, wrong to assume that the exercise of the discretion is only a naked arbitrary power to reject the application for stay of recovery for disputed amount of tax pending the appeal. Such discretion having been, by law, vested in the authority concerned, the power is for exercise and not for a laconic refusal to exercise it. In fact, the law on this aspect aptly stated by the Apex Court in the famous case of
L. Hirday Narain vs. I.T.O. [(1970) 78 ITR 26 (S.C.)]
"If a statute invests a public officer with authority to do an act in a specified set of circumstances, it is imperative upon him to exercise his authority in a manner appropriate to the case when a party interested and having a right to apply moves in that behalf and circumstances for exercise of authority are shown to exist. Even if the words used in the statute are prima facie enabling, the courts will readily infer a duty to exercise power which is invested in aid of enforcement of a right – public or private – of a citizen."
Though there is plethora of judicial pronouncements on this aspect, suffice will be here to refer to the recent decision of the Calcutta High Court in case of Golam Momen vs. Dy. CIT [(2002) 256 ITR 754 (Cal)] wherein the Court has summarised, in the context of discretion to be used u/s. 220(6), the following considerations which should form guidance while exercising the discretion :—
1. whether there is a prima facie case in favour of the assessee;
2. the amount of tax and penalty involved in the appeal;
3. the capacity of the assessee to pay the amount;
4. undue hardship to the assessee;
5. nature of security offered by the assessee.
While considering the above aspects, the authority must have also in mind the adverse effect that may ensue on the public revenue in case the stay is granted, though, it may not be the primary concern.
In fact, the Kerala High Court in the case of Gajanana Agencies vs. ITO [(1994) 210 ITR 865 – 867 (Ker)] has gone to the extent of holding that even if an order u/s. 220(6) grants instalments, if such order is nothing but another mode of enforcing recovery of the tax, disregarding the plea of the assessee for complete stay on merit by proving prima facie case, such order may not stand the test of proper exercise of the discretion. On facts of the case, while admitting the writ petition by the assessee, the High Court stayed recovery proceeding till expeditious disposal of first appeal of the aggrieved assessee.
Departmental Circulars / Instructions etc. –
The department has, from time to time, issued instructions, circulars, on the aspects of exercise of the discretion by the assessing officer u/s. 220(6). They are
1. Instruction No. 96 (F.No. 1/6/69 – ITCC) dated 21.8.1969
2. Circular No. 530, dated 6.3.1989
3. Circular No. 589, dated 16.1.1991
4. Instruction No. 1914 – F. No. 404 / 72 / 93 – ITCC, dated 2.12.1993
5. There is also an assurance given by the Minister for Revenue and Expenditure on floor of Lok Sabha on 11.12.1970.
It should be noted that various High Courts and Tribunals have, from time to time, taken judicial note of these instructions and circulars and, relying upon them, have granted suitable relief to the assessees concerned.
It should be noted that these parameters are applicable, unless the context otherwise requires, to the exercise of such power by all the authorities, that is, right from A.O., through CIT, to the Tribunal; though, in case of the later authority, such authority being a judicial body, akin to a court, it is required to observe such parameters and judicial norms more strictly and diligently. This is because, even with respect of such discretionary power to be exercised by higher authorities, more or less similar sentiments are voiced by various courts. The bottom line that emerges from analysis of the judgments on this aspect is that the exercise of such discretion cannot be mechanical, stereotyped, arbitrary or capricious, in a routine way, or in the matter of course. In fact, classic proposition in this regard was laid down by the Andhra Pradesh High Court as back as in 1956 in the case of Vetcha Sreeramamurthy vs. ITO [(1956) 30 ITR 252 (AP)] wherein, after analysing the judicial position on this aspect, the court observed: "To illustrate, if an assessee pays the admitted amounts and files an appeal raising substantial questions and gives security for the disputed amount, it would be a capricious exercises of discretion if the Income-tax Officer refuses to treat him as not a defaulter. If, as in the Calcutta case, appeals were filed raising substantial and serious questions and if protective assessments were made against the other firms and if large amounts were asked to be paid in ridiculously brief period with the certain result of ruining the business, it may also be an arbitrary exercise of power. If an assessee pays the admitted amounts and files an appeal raising substantial questions and gives reasonable security for the payment of the balance, but the Income-tax Officer refuses to stay on the ground that the financial condition of the State requires recovery of arrears, it would be an order taking into consideration extraneous and irrelevant circumstances. The aforesaid cases are only illustrative and there maybe many other cases where the Income-tax Officer would not be exercising his discretion honestly and fairly".
Similarly, Andhra Pradesh Court in the case of Subbshree Trading Enterprises Ltd. vs. Asst. CCIT [(1998) 111 STC 144, 145 (AP)] had to deprecate the overzealous and unseemly haste shown by the officer concerned in the matter of recovery. The High Court observed that "The orders of this nature undoubtedly undermine the confidence of tax-payers in the administration of tax law and gives rise to an undesirable impression that the department is following the principle of end justifying the means. We cannot but disapprove and deprecate such action on the part of the ............. (concerned officer).
In fact, on the basis of the settled position on the aspect of exercise of discretion —that wherever a statute invests a discretionary power in the officer, it is normally for exercise in favour of the person concerned unless there is some sound and relevant reasons to deny the benefit of the discretionary power —, in the matter of stay it has been held that the statutory power under the Income-tax Act given to the appellate authority carries with it a duty, in proper cases, to make such orders for staying recovery proceedings pending appeal as will prevent the appeal, if successful, from being rendered nugatory and to prevent the frustration and negation of the purpose of filing the appeal.
In view of this, the fact that the assessee is financially sound and is in a position to pay the demand cannot, in itself, a ground for refusing to exercise the discretion in granting the stay, if otherwise the assessee has made out a prima facie case in this regard. Similarly, the Tribunal cannot decline to exercise the discretion on merits on the ground that the concerned Commissioner has already granted a conditional stay. Similarly, as held by the Punjab High Court in a case of Escorts Tractor Ltd. vs. Sales Tax Tribunal [(1995) 98 STC 24, 25 (Punj)], by fixing the date of hearing, on application for interim stay, subsequent to the last date by which the party is required to deposit the tax, the appellant authority / Tribunal cannot render the appeal filed by the aggrieved party infructuous. The Court, in that case, observed that the appellate authority as well as the Tribunal should remember that they are quasi-judicial body and not the administrative authorities and their functioning must inspire confidence in the public.
Order, How to be passed: -
In this respect, the position is very well settled. The order should manifest and ex-facie disclose the reasons if the concerned authority declines to grant stay. The order must be a speaking order and it must be supported by reasons so that the superior court is assured that it is in accordance with the law and the discretion is not exercised capriciously or with whims and fancies or on the basis of policy or expediency. Since the exercise of the discretion is by a quasi-judicial authority, the principles of natural justice also get attracted automatically and, therefore, an opportunity of being heard is also a necessary requirement.
Judicial Scrutiny/Review:–
There is noting like "unfettered" or "absolute" discretion, immune from judicial scrutiny or review. If exercise of the discretion is found to be not in accordance with the well settled judicial norms and parameters, the High Court, in its inherent extraordinary jurisdiction under Articles 226 of the Constitution, may intervene and correct the judicial lapse caused by such order and give appropriate relief and direction to meet the exigencies, including directing the concerned authority to pass a fresh order in accordance with such norms and parameters.
I would like to end this article reproducing an extract from the judgment rendered by the Madras High Court in the case of Paulsons Litho Works vs. I.T.O. [(1994) 208 ITR 676 (Mad.)]
"By now the principles which should govern the grant of interim orders in the matter of stay of collection of taxes or revenue due to the State have become well-settled by many pronouncements of the Supreme Court of India as well as this court and other High Courts. There is no justification or basis to assume that the appellate authorities would throw to winds those well-settled principles in disposing of the application for stay. It is high time also that the Legislature takes note of these aspects and makes suitable provision in this regard to place the matter beyond mere guess or allow the exercise of power at the whims and fancies of officers without any uniformity in approach or guiding principles for consideration".

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