The AO rejected my stay application in a few lines and told me to pay 20%. Can that order stand?
No. An order under s.220(6) that brushes aside the assessee's submissions and mechanically directs payment of 20% is not a speaking order and will be quashed. The Gujarat High Court also held that a penalty demand is not 'tax', so the CBDT's 20% benchmark and the parameters that govern a tax demand do not simply carry across to a penalty appeal.
Decided by the High Court (Ms. Justice Harsha Devani and Mr. Justice Bhargav D. Karia) on 2019-04-15, reported as C/SCA/17033/2018 (Special Civil Application No. 17033 of 2018), High Court of Gujarat at Ahmedabad. It bears on section 220(6), section 220, section 271(1)(c), section 2(43), section 254 of the Income Tax Act 1961, in Demand, Recovery & Stay matters.
Most rejection orders under s.220(6) are three sentences long and end with '20% may be paid'. This is the judgment that says that is not enough — and it is the one to use where the demand under recovery is penalty rather than tax, which is very common after a s.271(1)(c) or s.270A order.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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A penalty order dated 27.9.2018 under s.271(1)(c) for assessment year 2012-13 raised a demand of Rs. 326,38,45,396. The assessee appealed to the Commissioner (Appeals) and applied to the Assessing Officer under s.220(6) for stay of recovery, setting out detailed submissions on the merits and on hardship. By order dated 25.10.2018 the third respondent refused unconditional stay and directed the assessee to pay at least 20% of the demand — roughly Rs. 65 crores — within three days and to produce the challan. Without waiting even for those three days, on 26.10.2018 the Assessing Officer recovered Rs. 8,27,80,220 by adjusting a refund payable to the assessee while giving effect to an order under s.254 for assessment year 2013-14. The assessee came to the High Court rather than pursuing the review before the Principal Commissioner contemplated by the Office Memorandum.
The petition was allowed. The order dated 25.10.2018 was quashed and set aside and the s.220(6) application was allowed. Stay against further recovery pursuant to the penalty order was granted until final disposal of the appeal by the first appellate authority, subject to the parent company providing, within three weeks, a corporate guarantee for the balance amount under the penalty order to subsist till that disposal (para 25).
The Court traced the administrative background at para 10: the Office Memorandum of 29.2.2016 fixed 15% of the disputed demand as the standard rate for stay pending first appeal, and the Office Memorandum of 31.7.2017 revised that standard rate to 20% on the view that 15% was on the lower side. It then distinguished a demand of penalty from a demand of tax. At para 18 it noted that the parameters for interim relief differ where what is sought is a stay of penalty rather than of tax, and at para 19 it held, on the definition in s.2(43), that 'On a plain reading of the definition of tax, it is evident that the same does not take within it sweep penalty imposed under any provision of the Act', so that although the mode and method of recovery may be the same, 'penalty cannot be equated with tax'. On the impugned order itself, para 20 records that the officer 'has made a short shrift of the matter without applying his mind to the relevant factors', brushing aside detailed submissions on merits and hardship on the footing that no payment scheme accompanied the application and no reason beyond pendency of appeal was given; the order therefore did not meet the requirement in paragraph C(v) of CBDT Instruction No. 1914 dated 2.2.1993 that the Assessing Officer consider all relevant factors bearing on the demand and communicate his decision in the form of a speaking order, and was 'totally bereft of any reasons'. Para 21 records the undue haste — three days to pay, recovery from a refund the very next day, and no opportunity for the review before the Principal Commissioner to be heard — which is why the writ was entertained. Para 23 states that the discretion conferred by s.220(6) must be exercised in a reasonable and proper manner and that arbitrary or capricious exercise, or non-application of mind, is open to challenge in the High Court.
Thus, it is amply clear that the third respondent has miserably failed to apply his mind to the submissions made by the assessee and has mechanically passed the impugned order directing the petitioner to pay 20% of the demand.
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Handle my notice → Ask a CA on WhatsAppNo. An order under s.220(6) that brushes aside the assessee's submissions and mechanically directs payment of 20% is not a speaking order and will be quashed. The Gujarat High Court also held that a penalty demand is not 'tax', so the CBDT's 20% benchmark and the parameters that govern a tax demand do not simply carry across to a penalty appeal. This was decided by the High Court (Ms. Justice Harsha Devani and Mr. Justice Bhargav D. Karia) and bears on section 220(6), section 220, section 271(1)(c), section 2(43), section 254 of the Income Tax Act 1961. It is reported as C/SCA/17033/2018 (Special Civil Application No. 17033 of 2018), High Court of Gujarat at Ahmedabad. Most rejection orders under s.220(6) are three sentences long and end with '20% may be paid'. This is the judgment that says that is not enough — and it is the one to use where the demand under recovery is penalty rather than tax, which is very common after a s.271(1)(c) or s.270A order. If it applies to you, the first step is this: Put your prima facie case, your financial position and the hardship on record in the s.220(6) application itself, in detail — the Court's criticism was that the AO ignored detailed submissions, which only works as a ground if the submissions exist on the file.
A penalty order dated 27.9.2018 under s.271(1)(c) for assessment year 2012-13 raised a demand of Rs. 326,38,45,396. The assessee appealed to the Commissioner (Appeals) and applied to the Assessing Officer under s.220(6) for stay of recovery, setting out detailed submissions on the merits and on hardship. By order dated 25.10.2018 the third respondent refused unconditional stay and directed the assessee to pay at least 20% of the demand — roughly Rs. 65 crores — within three days and to produce the challan. Without waiting even for those three days, on 26.10.2018 the Assessing Officer recovered Rs. 8,27,80,220 by adjusting a refund payable to the assessee while giving effect to an order under s.254 for assessment year 2013-14. The assessee came to the High Court rather than pursuing the review before the Principal Commissioner contemplated by the Office Memorandum. The matter was decided on 2019-04-15 by the High Court (Ms. Justice Harsha Devani and Mr. Justice Bhargav D. Karia). On those facts the High Court held as follows. The petition was allowed. The order dated 25.10.2018 was quashed and set aside and the s.220(6) application was allowed. Stay against further recovery pursuant to the penalty order was granted until final disposal of the appeal by the first appellate authority, subject to the parent company providing, within three weeks, a corporate guarantee for the balance amount under the penalty order to subsist till that disposal (para 25).
The Court traced the administrative background at para 10: the Office Memorandum of 29.2.2016 fixed 15% of the disputed demand as the standard rate for stay pending first appeal, and the Office Memorandum of 31.7.2017 revised that standard rate to 20% on the view that 15% was on the lower side. It then distinguished a demand of penalty from a demand of tax. At para 18 it noted that the parameters for interim relief differ where what is sought is a stay of penalty rather than of tax, and at para 19 it held, on the definition in s.2(43), that 'On a plain reading of the definition of tax, it is evident that the same does not take within it sweep penalty imposed under any provision of the Act', so that although the mode and method of recovery may be the same, 'penalty cannot be equated with tax'. On the impugned order itself, para 20 records that the officer 'has made a short shrift of the matter without applying his mind to the relevant factors', brushing aside detailed submissions on merits and hardship on the footing that no payment scheme accompanied the application and no reason beyond pendency of appeal was given; the order therefore did not meet the requirement in paragraph C(v) of CBDT Instruction No. 1914 dated 2.2.1993 that the Assessing Officer consider all relevant factors bearing on the demand and communicate his decision in the form of a speaking order, and was 'totally bereft of any reasons'. Para 21 records the undue haste — three days to pay, recovery from a refund the very next day, and no opportunity for the review before the Principal Commissioner to be heard — which is why the writ was entertained. Para 23 states that the discretion conferred by s.220(6) must be exercised in a reasonable and proper manner and that arbitrary or capricious exercise, or non-application of mind, is open to challenge in the High Court. In the words reproduced by the source cited on this page: "Thus, it is amply clear that the third respondent has miserably failed to apply his mind to the submissions made by the assessee and has mechanically passed the impugned order directing the petitioner to pay 20% of the demand."
It was decided by the High Court on 2019-04-15 and is reported as C/SCA/17033/2018 (Special Civil Application No. 17033 of 2018), High Court of Gujarat at Ahmedabad. 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 220, section 271(1)(c), section 2(43), section 254, 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 petition was allowed. The order dated 25.10.2018 was quashed and set aside and the s.220(6) application was allowed. Stay against further recovery pursuant to the penalty order was granted until final disposal of the appeal by the first appellate authority, subject to the parent company providing, within three weeks, a corporate guarantee for the balance amount under the penalty order to subsist till that disposal (para 25). It arises in Demand, Recovery & Stay matters, on section 220(6), section 220, section 271(1)(c), section 2(43), section 254 of the Income Tax Act 1961, and was decided by Ms. Justice Harsha Devani and Mr. Justice Bhargav D. Karia. 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. If the order rejecting stay gives no reasons for rejecting those submissions, say so expressly: para C(v) of CBDT Instruction 1914 dated 2.2.1993 requires a speaking order. Where the demand under recovery is penalty and not tax, argue that s.2(43) does not bring penalty within 'tax' and that the 20% standard rate in the Office Memorandum, which is framed for a disputed tax demand, does not govern. If the AO gives you only a few days and then adjusts a refund or issues a garnishee before the PCIT review can be heard, that haste is itself a ground — the Court relied on it to entertain the writ despite the availability of the administrative review. Be ready to offer security. Relief here came with a corporate guarantee from the parent for the balance.
Validity check could not be completed. Later treatment was not searched. No appeal or contrary decision was looked for, so the status is recorded as unverified rather than good law. 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.
Do not confuse this with Vodafone India Services Pvt. Ltd. v Union of India, Writ Petition No. 871 of 2014 (Bombay High Court), already in the library, which is the transfer-pricing share-issue case and has nothing to do with recovery. This is the Gujarat High Court, Special Civil Application No. 17033 of 2018. No ITR/DTR citation for this judgment was located from a source we could read, so only the case number is given under 'reported'. 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 petition was allowed. The order dated 25.10.2018 was quashed and set aside and the s.220(6) application was allowed. Stay against further recovery pursuant to the penalty order was granted until final disposal of the appeal by the first appellate authority, subject to the parent company providing, within three weeks, a corporate guarantee for the balance amount under the penalty order to subsist till that disposal (para 25).
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
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