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Recovery proceeding for Income tax demand

Naveen Kumar Jain (Chartered Accountant) (640 Points)

17 October 2020

1.Can ITO issue a Certificate, declaring an assessee in default, to the Recovery Officer, while his assessment order is in appeal to CIT(A), and while he has not communicated his order on the assesse's request to him to keep demand in abeyance until appeal is decided.? 2. Can Recovery Officer attach a property which was owned by the assessee but was irrevocably gifted to the son or daughter before ITO issued the Certificate declaring the assessee defaulter.

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7 Replies

rama krishnan (12239 Points)
Replied 17 October 2020

1. yes
2. yes

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Naveen Kumar Jain (Chartered Accountant) (640 Points)
Replied 17 October 2020

1. The ITO is requested to keep the demand in abeyance till appeal is decided. He has discretionery power to decide the issue. If he rejects the request, he has to state reason for the same and also provide an opportunity to the assessee to hear his case regarding the reasons. So declaring the assessee in default may not be always the case, but in many cases it will not be the norm. Am I right? I have also read some where that "Where the income determined on assessment is more than twice the income returned, collection of tax should be stayed during appeal." Kindly give your views.

2 Regarding point 2, the ownership is passed on to the son and daughter before the assessee is declared as an assessee in default. So how the Recovery Officer attach a property whose owner is not assessee? Kindly provide reference to section under which attachment of gifted property is allowed and under what circumstances or some case laws where such attachment was allowed.

Thanks for your response.

Sunil Sunny Kumar (61 Points)
Replied 17 October 2020

If you pay 20% of demand amount and take stay on balance demand. no recovery will be impose on balance demand upto case is in appeal.

Naveen Kumar Jain (Chartered Accountant) (640 Points)
Replied 17 October 2020

The assessee considers that his case is strong and demand is unjust, and he does not have funds to pay 20% of demand which is huge and beyond his means. So what is the situation about possibility of declaring him assessee in default during his pending appeal against assessment order.?

Sunil Sunny Kumar (61 Points)
Replied 17 October 2020

He will file stay petition to higher authority or appealate authority CITAppeal, high court and grant stay on merit of grounds will provide or not.

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rama krishnan (12239 Points)
Replied 17 October 2020

The same way the AO might think that his assessment order is strong and will sustain appeals. everyone has their own views. as stated by Mr Sunil, it's pre-requisite to pay 20%of tax demand before applying for stay petition . just because assessee has filed appeal before appellate forums, it couldn't be presumed that appeal will be decided in his favor and there won't be liability. on expiry of the due date mentioned in the demand notice, the assessee will be deemed as assessee in default whether any appeal is pending or not. any transfers during the pending of the assessment proceedings is void ab initio. so the gift made by the assessee is void

Amit Khare (204 Points)
Replied 17 October 2020

If the A.O. has issued a notice u/s 156 directing him to pay the tax within a stipulated time period and the tax is not paid, then the assessee is treated to be in default. In the office memorandum dt. 31.07.2017 the board has directed that the assessing officer shall stay of demand till disposal of first appeal if the assessee pays 20% of the disputed demand. An application can also be given to the A.O. to give relaxation to deposit this 20% in part payments. In genuine case the A.O. can allow that. If the case in appeal goes into the favour of the assessee than the amount deposited will be refunded back after the A.O. passes the order of appeal effect. If the A.O. has declined to stay the demand the matter can be referred to the CIT (Administration) of the range. He can also grant relief to the assessee in genuine hardship case. In my opinion you can move an application also to the CIT(Appeal) for early hearing.

Secondly if the assessee has gifted his property during the course of the proceedings than the gift will be void.