2022 (3) TMI 1403 - HC - Income Tax

Stay of demand - requirement of payment of twenty percent of disputed tax demand - HELD THAT - This Court is of the view that the requirement of payment of twenty percent of disputed tax demand is not a pre-requisite for putting in abeyance recovery of demand pending first appeal in all cases. The said pre-condition of deposit of twenty percent of the demand can be relaxed in appropriate cases. Even the Office Memorandum dated 29th February, 2016 gives instances like where addition on the same issue has been deleted by the appellate authorities in earlier years or where the decision of the Supreme Court or jurisdictional High Court is in favour of the assessee. In fact the Supreme Court in the case of PCIT vs. M/s LG Electronics India Pvt. Ltd. 2018 (7) TMI 1905 - SC ORDER has held that tax authorities are eligible to grant stay on deposit of amounts lesser than twenty percent of the disputed demand in the facts and circumstances of a case. In the present case, the impugned orders are non-reasoned orders. Neither the Assessing Officer nor the CIT have considered three basic principles i.e. the prima facie case, balance of convenience and irreparable injury while deciding the stay applications. Consequently, the impugned orders and notices are set aside and the matter is remanded back to the Commissioner of Income Tax for fresh adjudication in the application for stay. However, before deciding the stay application, the Commissioner of Income Tax shall grant a personal hearing to the authorised representative of the Petitioner. For this purpose, list the matter before the Commissioner of Income Tax on 18th April, 2022.

Summary

Issues:
Challenging orders disposing of stay application
Interpretation of conditions for granting stay
Consideration of principles of natural justice in passing orders
Applicability of deposit conditions in Office Memorandums
Requirement of personal hearing before deciding stay application
Clarification on coercive action pending decision on stay application

Analysis:
The petitioner filed a writ petition challenging orders dated 28th February, 2022 and 14th March, 2022, regarding the disposal of a stay application arising from a disputed demand of ?42,40,72,259/- under the Income Tax Act, 1961. The petitioner was held to be in default for failure to deduct tax at source on interest payments to China Development Bank. The impugned orders granted stay subject to payment of twenty percent of the demand, citing Office Memorandums from 2016 and 2017.

The petitioner contended that the order under section 201(1)/201(1A) of the Act was against the law and lacked natural justice principles. The impugned orders were criticized for not addressing the prima facie case, balance of convenience, and irreparable harm. The respondent argued that the deposit requirement was in line with the Office Memorandums.

Upon examination, the Court found that the deposit condition of twenty percent of the disputed demand was not mandatory in all cases pending first appeal. Citing precedents, the Court noted that tax authorities could grant stay on deposit of amounts less than twenty percent based on individual case circumstances. The Court emphasized the need for reasoned orders considering basic principles when deciding stay applications.

Consequently, the impugned orders were set aside, and the matter was remanded to the Commissioner of Income Tax for fresh adjudication, with a directive to grant a personal hearing to the petitioner's representative. Coercive action against the petitioner was prohibited until a decision on the stay application. The writ petition, along with pending applications, was disposed of with these directions.