Tax arrears: Remedies available to assessee

Tax arrears are demands raised against the assessees in the past but not paid

With the arrival of the new calendar, the Income Tax (I-T) Department, as a matter of annual exercise, stepped up its enforcement efforts to recover arrears of current and previous years’ tax demands by the end of March. Tax arrears mean demands raised against the assessees in the past but not paid. Reasons for piling up tax arrears could be pending litigations at various legal forums, stayed by courts, non-traceable of assessees, and liquidation of corporate entities among others. Taxpayers may be aware of the actual meaning of the term ‘theirs’ but not the twisted ones that will emerge when splitting as ‘THE’ and ‘IRS’ (Indian Revenue Service Cadre)! And serving demand notices is an integral part of the Income Tax law.
Demand Notice: When any tax, interest, fine, or any other sum is payable under Income Tax Act, the Assessing Officer (AO) shall issue a notice under Section 156 upon the assessee specifying the sum so payable. As per Section 220(1), the amount specified therein should be remitted within 30 days of the service of the notice. However, AO can curtail the period of 30 days with a valid reason in writing. The Supreme Court in Sri Mohan Wahi v. CIT (2001) 248 ITR 799 (SC) held that service of the notice of demand is the foundation and mandatory before initiating recovery proceedings. If an assessee does not pay the amount demanded therein, then he will be treated as ‘assessee-deemed-to-be-in-default’ and recovery proceedings can be initiated against him. Without a valid demand notice, the assessee cannot be treated as a defaulter.

Also read | Optional tax regime aimed at providing relief to persons in low income bracket: FM Nirmala Sitharaman

Intimation-cum-notice: The AO shall issue intimation under Section 143 (1) after processing his return of income stating that it is considered as final assessment or refund excess taxes paid after adjusting the tax dues or demand further tax, in case of short payment or omission of an income from the ambit of tax. This intimation shall be deemed to be notice of demand under Section 156.

Immediate remedies for an Assessee: Are there any remedies with assessee for not simply accepting the demand notice and complying with it? Let us have a look at various available remedies. The assessee has a right to file a stay application/petition as provided under the law. Accordingly, he can file -

a) Stay application before jurisdictional AO followed by appeal with the Commissioner of Income Tax (Appeals) or CIT-(A)

b) Application for payment of demand in installments,

c) Stay application before the Appellate Tribunal or Income Tax Appellate Tribunal (ITAT)

d) Writ petition in High Court against the rejection of stay application

e) Writ petition in High Court by invoking extra-ordinary jurisdiction.

Before Jurisdictional AO: Assessee can request the AO by making an application to keep the demand in abeyance until the disposal of his appeal by the CIT-(A). Section 220(6) vests discretionary powers on the Assessing Officer to decide such applications suitably. Bombay High Court in Vignahar Sahakari Sakhar Karkhana Ltd. v. ITO (2013) 219 Taxman 116 (Mag.)(Bom.)(HC) held that the rejection of the stay application merely stating that no prima facie case was not proper. In another case, it was held that an order disposing of a stay petition should be a reasoned order. Time-period for disposal of stay petitions will be two weeks.

Before CIT-(A): As Allahabad High Court held in Tin Manufacturing Co of India v. CIT (1995) 212 ITR 451 (All) it is possible to file a stay petition before the CIT-A. However, it is advisable to approach the concerned AO before proceeding as such. In case he rejects the stay petition, then the assessee can approach higher-ups. Though the statute has not provided specific powers to grant a stay to the CIT-A, courts held that the first appellate authority has the power to grant stay. For instance, Gujarat High Court in Harsh Dipak Shah v. UoI (2022) 135 taxmann.com 242 (Guj) held that granting of stay is an inherent power of CIT-(A).

Stay application before ITAT: An assessee can approach the Tribunal to stay the recovery with an appeal pending before it. The Tribunal has the power to grant a stay of recovery of tax, interest and even penalty. As per Section 254 (2A), the Tribunal can grant a stay up to 180 days subject to the disposal of appeal within that period which can be extended up to 365 days with the same conditions. If for any reason, failed to dispose of the appeal within 365 days, the stay order shall stand vacated even if delay is not attributable to the assessee.

Writ petition in High Court against the rejection of stay application: Upon rejection of stay application, the assessee can file a writ petition before the jurisdictional High Court.

Writ petition in High Court: An assessee can also file a writ petition directly before the jurisdictional High Court against the order of assessment and High Court may admit the said petition by invoking its extra-ordinary jurisdiction.

Concluding remarks

The I-T Department is rushing to recover its tax arrears of about 40 per cent or Rs 7.7 lakh crore out of the total arrears of Rs 19.35 lakh crore. The tax personnel are expected to carry out recovery related surveys on a large scale in the next few weeks. From assessees’ point of view, it is advisable to check their email ids registered with the I-T Department, its communications authenticity at the e-portal of I-T department and take corrective measures.

(The author is the founder and CEO of Shree Tax Chambers)