Binding CBDT circulars can limit recovery to 15% of demand while appeals proceed on merits.

The Madhya Pradesh High Court held that the earlier stay order required modification because CBDT office memoranda and binding tax circulars can be relied on to temper recovery proceedings. As the department itself had later directed deposit of 15% of the outstanding demand, the assessees were entitled to that limited deposit pending disposal of the appeals on merits. The result was that recovery was confined to 15% of the demand, with the appeals to proceed on merits.

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Issues: Whether the assessees were entitled to modification of the earlier stay order so that recovery of outstanding demand would be restricted to 15% of the demand pending disposal of the appeals on merits.

Analysis: The Court relied on the CBDT office memorandum and the settled principle that circulars issued under the Income-tax Act are binding on the income tax authorities and may be used to mitigate the rigour of recovery provisions. It also noticed that the department itself had directed deposit of 15% of the outstanding demand in the later recovery communication. In these circumstances, and following the approach adopted in similar cases, the earlier order refusing such relief required modification.

Conclusion: The assessees were entitled to deposit 15% of the outstanding demand and have the appeals heard on merits.

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