My s.220(6) application against a penalty demand was rejected only because I filed no evidence of financial hardship. Is that a good enough reason?
No. Financial stringency is only one of the three things the officer must examine; he must also consider whether a prima facie case on merits is made out and whether the balance of convenience is overwhelmingly in the applicant's favour. The Madras High Court disposed of the writ by permitting the assessee to invoke the review remedy in the Office Memorandum before the Principal Commissioner within two weeks, with four weeks' interim protection, and directed that the reviewing authority be guided by the decisions of that Court and of the Supreme Court.
Decided by the High Court (C. Saravanan J) on 2022-02-09, reported as W.P(MD) No. 25512 of 2019 and W.M.P(MD) Nos. 22073 and 22076 of 2019 (Madras High Court, Madurai Bench). It bears on section 220(6), section 271D of the Income Tax Act 1961, in Demand, Recovery & Stay and Penalty matters.
Two practical points. First, the 20% direction is routinely made in respect of penalty demands as well as tax demands - here it was a s.271D penalty of Rs.5.70 crores - and the same parameters apply. Second, the Court's disposal shows the route the Madras High Court prefers: not quashing the order but sending the assessee to the review provided in para 4(C) of the OM, with a direction that the reviewing authority apply the case law. It also records the Supreme Court's clarification in LG Electronics that authorities may, on the facts of individual cases, grant deposit orders of a lesser amount than 20% pending appeal.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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A penalty of Rs.5.70 crores was imposed on the petitioner under s.271D by order dated 18.07.2018. The petitioner appealed to the Commissioner of Income Tax (Appeals), Madurai, and applied to the Assessing Officer under s.220(6) for stay of recovery pending that appeal. By order dated 21.10.2019 the Assistant Commissioner rejected the application, relying on the circular dated 31.07.2017 bearing reference F.No.404/72/93-ITCC, the only reason given being the petitioner's failure to file evidence substantiating financial hardship, and directed deposit of 20% of the disputed amount. Counsel for the petitioner was unable to confirm whether the appeal had since been disposed of; the standing counsel submitted that the petitioner had an alternative remedy by way of revision under the CBDT circulars.
The writ petition was disposed of with observations and no costs (para 15). The rejection order was found wanting because it merely stated that no evidence of financial hardship had been brought on record, whereas what is required to be examined is whether the petitioner had made out a prima facie case on merits and whether the balance of convenience was overwhelmingly in the petitioner's favour, apart from financial stringency (para 13). Since the circular gives a revisional remedy, the petitioner was permitted to file an application to revise the impugned order within two weeks, provided the appeal had not been decided; if the appeal had been decided, the petitioner was at liberty to appeal to the Tribunal with a stay application; if the appeal was still pending, there was to be interim protection for four weeks to enable the revision to be filed, and the Principal Commissioner or Commissioner was to dispose of it within two weeks and to be guided by the decisions of the Court and of the Supreme Court (para 14).
The Court reproduced para 4 of the Office Memorandum dated 29.02.2016 and recorded that the 15% was later enhanced to 20% by the Office Memorandum dated 31.07.2017, and that the circular gives an assessee still aggrieved after a stay on payment of the standard rate the remedy of approaching the jurisdictional Pr.CIT/CIT for review of the Assessing Officer's decision (paras 9 to 11). It noted the Supreme Court's decision in PCIT v. LG Electronics India Private Limited (2018) 18 SCC 447 as holding that orders under s.220(6) passed without any reason can be remitted for determination of financial hardship and that it is open to the authorities to examine the facts of a case and direct deposit of an amount less than 20% pending the main appeal (para 12). Reading the impugned order against that background, and against Kannammal v. ITO [2019] 413 ITR 390 (Mad), the Court held that financial hardship alone was not the test (para 13), and, the circular itself providing a revisional remedy, moulded the relief accordingly rather than quashing the order (para 14).
the petitioner had made out a prima facie case on merits and whether the balance of convenience was overwhelmingly in favour of the petitioner for grant of an interim relief
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Handle my notice → Ask a CA on WhatsAppNo. Financial stringency is only one of the three things the officer must examine; he must also consider whether a prima facie case on merits is made out and whether the balance of convenience is overwhelmingly in the applicant's favour. The Madras High Court disposed of the writ by permitting the assessee to invoke the review remedy in the Office Memorandum before the Principal Commissioner within two weeks, with four weeks' interim protection, and directed that the reviewing authority be guided by the decisions of that Court and of the Supreme Court. This was decided by the High Court (C. Saravanan J) and bears on section 220(6), section 271D of the Income Tax Act 1961. It is reported as W.P(MD) No. 25512 of 2019 and W.M.P(MD) Nos. 22073 and 22076 of 2019 (Madras High Court, Madurai Bench). Two practical points. First, the 20% direction is routinely made in respect of penalty demands as well as tax demands - here it was a s.271D penalty of Rs.5.70 crores - and the same parameters apply. Second, the Court's disposal shows the route the Madras High Court prefers: not quashing the order but sending the assessee to the review provided in para 4(C) of the OM, with a direction that the reviewing authority apply the case law. It also records the Supreme Court's clarification in LG Electronics that authorities may, on the facts of individual cases, grant deposit orders of a lesser amount than 20% pending appeal. If it applies to you, the first step is this: Do not let the rejection order define the issue as financial hardship alone; put the prima facie merits and the balance of convenience in the application and in the writ.
A penalty of Rs.5.70 crores was imposed on the petitioner under s.271D by order dated 18.07.2018. The petitioner appealed to the Commissioner of Income Tax (Appeals), Madurai, and applied to the Assessing Officer under s.220(6) for stay of recovery pending that appeal. By order dated 21.10.2019 the Assistant Commissioner rejected the application, relying on the circular dated 31.07.2017 bearing reference F.No.404/72/93-ITCC, the only reason given being the petitioner's failure to file evidence substantiating financial hardship, and directed deposit of 20% of the disputed amount. Counsel for the petitioner was unable to confirm whether the appeal had since been disposed of; the standing counsel submitted that the petitioner had an alternative remedy by way of revision under the CBDT circulars. The matter was decided on 2022-02-09 by the High Court (C. Saravanan J). On those facts the High Court held as follows. The writ petition was disposed of with observations and no costs (para 15). The rejection order was found wanting because it merely stated that no evidence of financial hardship had been brought on record, whereas what is required to be examined is whether the petitioner had made out a prima facie case on merits and whether the balance of convenience was overwhelmingly in the petitioner's favour, apart from financial stringency (para 13). Since the circular gives a revisional remedy, the petitioner was permitted to file an application to revise the impugned order within two weeks, provided the appeal had not been decided; if the appeal had been decided, the petitioner was at liberty to appeal to the Tribunal with a stay application; if the appeal was still pending, there was to be interim protection for four weeks to enable the revision to be filed, and the Principal Commissioner or Commissioner was to dispose of it within two weeks and to be guided by the decisions of the Court and of the Supreme Court (para 14).
The Court reproduced para 4 of the Office Memorandum dated 29.02.2016 and recorded that the 15% was later enhanced to 20% by the Office Memorandum dated 31.07.2017, and that the circular gives an assessee still aggrieved after a stay on payment of the standard rate the remedy of approaching the jurisdictional Pr.CIT/CIT for review of the Assessing Officer's decision (paras 9 to 11). It noted the Supreme Court's decision in PCIT v. LG Electronics India Private Limited (2018) 18 SCC 447 as holding that orders under s.220(6) passed without any reason can be remitted for determination of financial hardship and that it is open to the authorities to examine the facts of a case and direct deposit of an amount less than 20% pending the main appeal (para 12). Reading the impugned order against that background, and against Kannammal v. ITO [2019] 413 ITR 390 (Mad), the Court held that financial hardship alone was not the test (para 13), and, the circular itself providing a revisional remedy, moulded the relief accordingly rather than quashing the order (para 14). In the words reproduced by the source cited on this page: "the petitioner had made out a prima facie case on merits and whether the balance of convenience was overwhelmingly in favour of the petitioner for grant of an interim relief" The decision followed or applied Queen Agencies v. ACIT (Circle-1), W.P.(MD) No. 5550 of 2020 - followed; Kannammal v. ITO [2019] 413 ITR 390 (Mad) - followed on the parameters; PCIT v. LG Electronics India Private Limited (2018) 18 SCC 447 - applied.
It was decided by the High Court on 2022-02-09 and is reported as W.P(MD) No. 25512 of 2019 and W.M.P(MD) Nos. 22073 and 22076 of 2019 (Madras High Court, Madurai Bench). Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 220(6), section 271D, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The writ petition was disposed of with observations and no costs (para 15). The rejection order was found wanting because it merely stated that no evidence of financial hardship had been brought on record, whereas what is required to be examined is whether the petitioner had made out a prima facie case on merits and whether the balance of convenience was overwhelmingly in the petitioner's favour, apart from financial stringency (para 13). Since the circular gives a revisional remedy, the petitioner was permitted to file an application to revise the impugned order within two weeks, provided the appeal had not been decided; if the appeal had been decided, the petitioner was at liberty to appeal to the Tribunal with a stay application; if the appeal was still pending, there was to be interim protection for four weeks to enable the revision to be filed, and the Principal Commissioner or Commissioner was to dispose of it within two weeks and to be guided by the decisions of the Court and of the Supreme Court (para 14). It arises in Demand, Recovery & Stay and Penalty matters, on section 220(6), section 271D of the Income Tax Act 1961, and was decided by C. Saravanan J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Where the demand is a penalty, apply the same parameters - and consider the separate argument that a penalty demand stands differently from a tax demand pending the quantum appeal. Use the review under para 4(C) of the OM of 29.02.2016 before the jurisdictional Pr.CIT/CIT; the Court treated it as the appropriate remedy and gave two weeks to file it and two weeks for its disposal. Ask for interim protection to cover the review period - the Court granted four weeks. Check whether the CIT(A) has already decided the appeal; if it has, the route is an appeal to the Tribunal with a stay application, and the s.220(6) order falls away.
Validity check could not be completed. Later treatment was not checked. The order is a disposal with directions rather than a decision on a contested question of law, and the relief moulded turns on the state of the pending appeal as at February 2022. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The order runs to 15 numbered paragraphs; paragraph 9 reproduces para 4 of the CBDT Office Memorandum dated 29.02.2016, whose lettering (A) to (E) belongs to the OM and not to the Court. There are internal date discrepancies: paras 1, 5 and 6 identify the s.271D penalty order as dated 18.07.2018, while para 14 refers to an appeal 'against order dated 13.07.2019'. Para 3 dates the decision in Queen Agencies as 01.04.2021, which is the date it was reserved; it was pronounced on 08.04.2021. Para 10 describes the 15% (now 20%) as a 'thumb rule' that applies 'mandatorily', which sits awkwardly with paras 12 and 13 and with the Supreme Court's clarification in LG Electronics recorded at para 12 that a lesser deposit may be ordered; the operative reasoning is in paras 12 to 14. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The writ petition was disposed of with observations and no costs (para 15). The rejection order was found wanting because it merely stated that no evidence of financial hardship had been brought on record, whereas what is required to be examined is whether the petitioner had made out a prima facie case on merits and whether the balance of convenience was overwhelmingly in the petitioner's favour, apart from financial stringency (para 13). Since the circular gives a revisional remedy, the petitioner was permitted to file an application to revise the impugned order within two weeks, provided the appeal had not been decided; if the appeal had been decided, the petitioner was at liberty to appeal to the Tribunal with a stay application; if the appeal was still pending, there was to be interim protection for four weeks to enable the revision to be filed, and the Principal Commissioner or Commissioner was to dispose of it within two weeks and to be guided by the decisions of the Court and of the Supreme Court (para 14).
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