2017 (5) TMI 256 - HC - Income Tax

Stay application - Scope of Office Memorandum F. No. 404/72/93- ITCC issued by CBDT - Held that - Between clause 4 B (a) and clause 4 B (b), the word used is or and therefore, in both the eventualities ie., in case of Clause 4 B (a) and in case of Clause 4 B (b) ie., in case the Assessing Officer is of the opinion that the assessee is required to deposit either above 15% or less than 15% of the disputed demand, in that case, the Assessing Officer is required to refer the matter to the Principal CIT/CIT and thereafter, the Principal CIT/CIT is required to take appropriate decision, after considering all the relevant facts and determine the lump sum payment to be made by the assessee for granting stay of the balance demand. In a case where the Assessing Officer grants stay of demand on payment of 15% of the disputed demand and the assessee is still aggrieved, in that case, a further right is conferred upon the assessee to approach the jurisdictional administrative Principal CIT/CIT for review of the decision of the Assessing Officer. Under the circumstances, for the reasons stated above, the impugned decision of the respondent no.2- Assessing Officer rejecting the stay application cannot be sustained and the same deserves to be quashed and set-aside. Assessing Officer is required to take appropriate decision on the stay application, as per the modified instruction dated 29th February 2016 and unless the case falls within Clause 4 B (a) & (b), he is required to pass appropriate order on the stay application, granting stay on payment of 15% of the disputed demand. In case, the Assessing Officer is of the opinion that the case falls within Clause 4 B (a) or (b), in that case, he is required to follow the procedure as observed hereinabove; more particularly, Clause 4 B where the Assessing officer is required to refer the matter to the administrative Principal CIT/CIT and thereafter, the Principal CIT/CIT to take appropriate decision.

Issues Involved:
1. Validity of the impugned orders rejecting the stay application for tax demand.
2. Interpretation of the modified instructions dated 29th February 2016 regarding pre-deposit requirements for stay applications.
3. Procedural requirements for the Assessing Officer (AO) when dealing with stay applications.

Detailed Analysis:

1. Validity of the Impugned Orders Rejecting the Stay Application for Tax Demand:
The petitioner challenged the orders passed by the respondents rejecting their application to stay the tax demand until the disposal of the first appeal. The AO had determined the petitioner’s income at ?1,97,76,530/- against the returned income of ?4,64,554/-, resulting in a demand notice of ?91,38,400/-. The petitioner’s application for stay under Section 220(6) of the Income-tax Act was rejected by the AO on the grounds that the petitioner had not deposited 15% of the disputed demand as a pre-deposit. The same reasoning was applied by the respondent no. 1, who also rejected the stay application and directed the petitioner to pay the entire outstanding demand. The court found the rejection of the stay application solely on the ground of non-deposit of 15% of the disputed demand to be based on a misinterpretation of the modified instructions dated 29th February 2016.

2. Interpretation of the Modified Instructions Dated 29th February 2016 Regarding Pre-Deposit Requirements for Stay Applications:
The petitioner argued that the requirement to deposit 15% of the disputed demand as a pre-deposit was not mandated by the modified instructions dated 29th February 2016. The court examined Clause 4 of the modified instructions, which outlines the procedure for granting a stay of demand. It was noted that the AO is required to grant a stay of demand till the disposal of the first appeal on payment of 15% of the disputed demand unless the case falls under Clause 4[B]. The court clarified that there is no requirement for a pre-deposit of 15% of the disputed demand either at the time of submitting the stay application or before the application is considered on merits. The court emphasized that the AO must pass an appropriate order on the stay application, and if the case falls under Clause 4[B], the AO must refer the matter to the administrative Principal CIT/CIT for a decision on the quantum of the lump sum payment.

3. Procedural Requirements for the Assessing Officer (AO) When Dealing with Stay Applications:
The court highlighted the procedural requirements for the AO when dealing with stay applications. If the AO believes that a deviation from the 15% requirement is warranted (either higher or lower), the matter must be referred to the administrative Principal CIT/CIT. The Principal CIT/CIT will then decide the appropriate quantum of the lump sum payment. The court rejected the Revenue’s argument that the AO is only required to refer the matter to the Principal CIT/CIT when a lower amount is warranted. The court clarified that in both scenarios (higher or lower than 15%), the AO must refer the matter to the Principal CIT/CIT. Additionally, if the AO grants a stay on payment of 15% of the disputed demand and the assessee is still aggrieved, the assessee can approach the jurisdictional administrative Principal CIT/CIT for a review.

Conclusion:
The court quashed the impugned orders passed by the respondents and remanded the matter to the AO to consider the stay application afresh in accordance with the modified instructions dated 29th February 2016 and the observations made in the judgment. The AO is directed to complete this exercise within six weeks. The court ruled in favor of the petitioner to the extent of setting aside the impugned orders and remanding the matter for reconsideration. No costs were awarded.

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