Key Takeaways: Stages of Appeal Power to Grant Stay Conditions for Granting Stay Procedure for Filing Stay Petition

1. Stay of Demand under Income Tax
Act
CA Jugal Gala

2. Credits & Acknowledgements
R Subash

3. Legends Used in the Presentation
AO Assessing Officer
CIT Commissioner of Income Tax
ITAT Income Tax Appellate Tribunal

4. Presentation Schema
Stay of Demand
Appellate
Procedure in Brief
Application for Stay
of Demand
Parameters for
Granting Stay
Prepayment for
Stay
Is Prepayment
Fixed?
Other Conditions
Application for Stay
of Demand Made
to CIT (Appeals)
Application for Stay
of Demand Made
to ITAT

5. Stay of Demand
.
--- Postponement of recovery of demand during pendency of appeal.
As per Section 220(1), demand payable as mentioned in notice issued u/s 156 shall be paid within thirty
days of service of notice
Stay of Demand-Sec 220(6)-However, if the assessee has opted to raise an appeal to the Appellate
Authority, then AO may grant stay of recovery of demand and treat the assessee as not being in
default, as long as the appeal with the Appellate Authority remains disposed off.
For this purpose, the assessee files a letter along with the relevant enclosures for grant of stay of
demand during the pendency of the appeal.

6. Appellate Procedure in Brief
Order passed
by AO
determining
liability (tax,
interest or
penalty)
Notice of
Demand u/s
156 is served to
assessee by AO
Appeal made
to
Commissioner
(Appeals) u/s
246A
Commissioner
can
confirm/reduc
e/enhance the
penalty or pass
order as per
powers
conferred u/s
251
Appeal made
to Appellate
Tribunal u/s
253
Order Passed
by Appellate
Tribunal u/s
254
Every order passed by Tribunal shall lie to the High Court, if the High Court is satisfied that the case involves a
substantial question of law.
Application for stay of demand shall be made to Assessing Officer or to Commissioner (Appeals) or to the
Appellate Tribunal depending upon the stage of appeal.
First Appellate
Authority
Second Stage of
Appeal

7. Application for Stay of Demand
Application to be made to AO
u/s 220(6) – CIT(A) also has
powers (discussed later)
Application to be
made to ITAT u/s
253(7)
Appeal
made to
CIT(A)
Appeal made to
ITAT
An application for stay of demand shall be disposed off, in any case, within 2 weeks from the receipt
of application.

8. Parameters for Granting Stay of Demand by AO
Prima Facie
Case
Financial
Stringency
Balance of
Convenience
AO is satisfied that there
is a non-rebuttable
presumption that the
assessee has a valid
reason in appealing at a
higher level.
To prove that payment
of demand would result
in financial stringency
including undue
hardship or irreparable
injury.
Assessee needs to
prove that the loss
caused to the assessee
would be relatively
greater if the stay is
not granted.
Mere filing of appeal against order will not be sufficient reason. The AO has to examine the existence of the
following 3 parameters for granting stay of demand- (Mrs. Kannammal vs. Income-tax Officer-Ward-1(1),
Tirupur [2019] 413 ITR 390 (Madras)/ Shriram Finance vs. Principal Commissioner of Income-tax)

9. Pre-payment for Stay of Demand
CBDT issued Instruction No. 1914 dated 21.03.1996 containing procedures to be followed
for recovery of demand and grant of stay of demand at the first appeal stage.1996
• While granting stay field officers may require the assessee to offer a suitable security (bank guarantee, etc.) and/ or
require the assessee to pay a reasonable amount in lump sum
Partial modification of Instruction No. 1914 by CBDT vide office memorandum dated
29.02.2016.2016
• AO shall grant stay of demand till disposal of first appeal on payment of 15% of disputed demand.
Partial modification of Instruction No. 1914 by CBDT vide office memorandum dated 31.07.2017.2017
• Increase in standard rate from 15% to 20% of outstanding demand (only indicative).
Amendment to Section 254 vide Finance Act, 20202020
• Tribunal may grant stay of proceedings to the assessee relating to appeal filed to it (u/s 253) provided the assessee pays
20% of disputed amount or furnishes security of equal amount.
• Previously the additional 20% payment condition was not present.

10. Is the 20% Prepayment Fixed?
Payment of lump sum amount higher
than 20% is warranted (e.g. where
addition on same issue has been
confirmed with Judicial precedents or
based on credible evidence collected in
a search or survey operation, etc.) or,
Payment of lump sum amount lower than
20% is warranted (e.g. where addition on
the same issue has been deleted in Judicial
precedents etc.)
NO. It is to be noted that the 20% condition is not a statutory obligation- Suresh Anuradha vs. Commissioner of
Income-tax [2020] 115 taxmann.com 73 (Madras)]. In the following two cases, the AO shall refer the matter to the
administrative Pr. CIT/ CIT, who after considering all relevant facts shall decide the quantum of demand to be paid by
the assessee as lump sum payment for granting a stay of the balance demand.
In a case where stay of demand is granted by AO on payment of 20% of the disputed demand and the assessee is still
aggrieved, he may approach the jurisdictional administrative Pr. CIT/ CIT for a review of the decision of the assessing
officer.
However the 20% pre-payment is applicable only at the AO level, whereas the courts may demand a further payment
of 20% of the outstanding demand Bright Packaging (P.) Ltd. vs. ACIT [2019] 417 ITR 356 (Karnataka).

11. Other Conditions
(i) require an undertaking from assessee to cooperate in the early disposal of appeal failing which
the stay order will be cancelled;
(ii) reserve the right to review the order passed after expiry of reasonable period (say 6 months) or if
the assessee has not cooperated in the early disposal of appeal, or where a subsequent
pronouncement by a higher appellate authority or court alters the above situations;
(iii) reserve the right to adjust refunds arising against the demand, to the extent of the amount
required for granting stay and subject to the provisions of section 245.
In granting stay the AO may impose the following conditions:

12. Application for Stay of Demand Made to CIT
(Appeals)
The power of CIT (Appeals) to grant stay of demand is not explicitly provided in the Act.
However, Section 251 (Power of Commissioner-Appeals) of the Act grants wide range of powers to
CIT (Appeals) on any matter concerned with the appeal pending before him notwithstanding that
such matter was not raised before him by the appellant.
Therefore CIT (Appeals) may have the power to grant stay of demand w.r.t appeal pending before
him, depending upon the facts of the case.
This was also decided in the case Paulsons Litho Works vs. Income-tax Officer [1994] 208 ITR 676
(Madras) wherein it was held that
• Section 251 impliedly empowers first appellate authority to stay collection of disputed tax from
assessee during pendency of appeal before him and
• Such power is to be exercised by first appellate authority in most deserving and appropriate cases
on being satisfied that very object of appeal would be rendered nugatory or frustrated if such stay
was not granted

13. Application for Stay of Demand Made to ITAT
Similar to Section 251, Section 254(1) (Orders of
Appellate Tribunal) confers wide rage of powers to
the Appellate Tribunal to pass such orders as it
thinks fit.
The Tribunal cannot however grant stay beyond a
period of 180 days which can be further extended
up to 365 days.
Since as per Section 254(2A), Tribunal has to pass
order within the period of Stay granted, the
assessee, if the order is unfavourable, has to pay
the demand amount on the expiry of such period,
whether or not the case has been referred to High
Court.
Rule 35A(2) of Income Tax (Appellate Tribunal) Rules, -
Application for stay of demand to be made in Triplicate
to Registrar and contain the following:
• Short facts regarding the demand
• Result of the appeal filed before the [CIT
(Appeals)]
• Exact amount of demand outstanding and the
portion of such demand disputed
• the date of filing the appeal before the Tribunal
• Any application for stay that was made to the
revenue authorities concerned
• Brief reasons for seeking stay ;
• Whether the applicant is prepared to offer security,
and if so, in what form;
• Prayers to be mentioned clearly and concisely
• The contents of the application shall be supported
by an affidavit along with a fee of Rs. 500.
Though not specifically provided, a similar application
along with relevant enclosures would suffice for
applying for stay of demand to AO or CIT (Appeals)

14. Conclusion
Previously the field authorities often insisted on payment of very high proportion of the disputed
demand before granting stay of demand.
Such requirements have been done away with vide office instructions issued in 2016 and 2017
to bring in a streamlined procedure.
AO’s orders rejecting stay of demand merely on the basis of non-payment of 20% demand
amount would be set aside.
Instructions are only a thumb rule and cannot substitute the basic tenets to be followed in the
consideration of stay petition.
Ample number of case laws confirm the need to check the existence of three parameters which
constitute the trinity. (prima facie case, financial stringency and balance of convenience).

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