Appeal Does Not Automatically Stay Tax Recovery: Madras HC Affirms CBDT’s 20% Deposit Requirement Before Granting Recovery Stay in Income Tax Proceedings [Read Order]
The Court upheld the requirement of 20% deposit of disputed tax demand before granting stay of recovery, subject to demonstration of exceptional financial hardship.
The bench of the Madurai Bench of the Madras High Court held that the filing of an appeal against an assessment order does not, by itself, operate as a stay on tax recovery proceedings. The Court affirmed that the requirement to deposit 20% of the disputed tax demand, as prescribed under the instructions of the Central Board of Direct Taxes (CBDT), must be satisfied before a stay on recovery can be considered.
The petitioner, M/s. Rasheed Ali and Sons, engaged in the retail trading of petrol and diesel as a dealer of Indian Oil Corporation Limited, received notices relating to tax dues for Assessment Years 2014-2015 and 2019-2020 under Section 143(1)(a) of the Income Tax Act, 1961 and under Section 147 of the Income Tax Act, 1961. An assessment order dated 28 December 2023 and a penalty order under Section 271AAC(1) of the Income Tax Act, 1961 were subsequently challenged in appeal on 31 May 2024.
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The petitioner simultaneously sought a stay on recovery, but the Assessing Officer (AO) directed payment of 20% of the disputed demand as per CBDT Instruction No.1914, dated 21.03.1996. Despite depositing ₹1,25,000 to establish bona fides, the petitioner expressed inability to pay the required pre-deposit due to financial hardship. The AO proceeded to reiterate the recovery demand and attach bank accounts, leading to the filing of the present writ petition.
The petitioner, represented by Hari Radhakrishnan, contended that recovery should be kept in abeyance until disposal of the appeal by the Commissioner of IncomeTax (Appeals). It was argued that the petitioner was facing financial distress and had already demonstrated bona fides by making a partial payment.
The Department, represented by N. Dilip Kumar, argued that the payment of 20% of the disputed demand is a mandatory pre-condition under CBDT Instruction No.1914 and Office Memorandum dated 31 July 2017 for granting stay of recovery. The Department submitted that the petitioner had failed to provide sufficient evidence of financial hardship and that the authority was justified in proceeding with recovery, including attachment of bank accounts.
The Bench of Justice Vivek Kumar Singh dismissed the writ petition and affirmed the Department’s right to proceed with recovery. The Court further found that the documents submitted did not sufficiently establish financial hardship warranting waiver or relaxation of the pre-deposit condition.
The Court held that the Department acted in accordance with CBDT guidelines and that the assessee’s pending appeal before the Commissioner of Income Tax (Appeals) did not by itself confer protection from recovery measures.
Consequently, the Tribunal directed the petitioner to comply with requirement of paying 20% of the disputed demand for the Assessment Year 2019-2020, in accordance with the relevant CBDT instructions and Office Memorandums, failure to which will result in coercive recovery measures.
Accordingly, the Writ was dismissed.
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