2017 (5) TMI 261 - HC - Income Tax

Stay of demand - recovery proceedings u/s 226 - petitioner institute has been set up and is maintained by the State Government for advancement of scientific knowledge - Held that - In the instant case, a bare perusal of the impugned order reveals that no reasons whatsoever have been mentioned while rejecting the case of the petitioner for stay of demand during the pendency of the appeal. It is enjoined upon the Appellate Authority to set out the reasons in support of the order passed. Giving reasons is one of the fundamentals of sound administration of justice. It is necessary to disclose the reasons which would indicate application of mind on the part of the authority and the aggrieved party would know as to why the decision has gone against it. It may not be necessary to set out reasons in detail but reasons at least in brief have to be stated by the Adjudicatory Authority. It is important to note that the petitioner institute has been set up and is maintained by the State Government. The object of the petitioner institute is advancement of scientific knowledge aimed at enhancing the quality of patient care. The case of the petitioner against the assessment for the year 2011-12 has already been decided in its favour and it is stated to be entitled to refund of ₹ 5.87 crores. The setting aside by ITAT of withdrawal of the registration of the petitioner institute under Section 12AA will have a bearing on the demand raised against the petitioner as well as the outcome of the appeal before the CIT. It deserves to be noticed that against the total demand of ₹ 171.14 crores raised from the petitioner an amount of ₹ 72.39 crores has already been recovered/received by the respondents. In the impugned order, the demand pertaining to assessment years 2006-07 to 2010-11 has already been stayed as the petitioner has deposited an amount of 15%. It is also not a case where the petitioner institute has been a wilful defaulter and it would be difficult to recover the amount in case, appeal is decided against it. The petitioner has also been able to make out a prima facie case. We are, therefore, of the view that the case of the petitioner falls in exceptional circumstances which would warrant stay of demand without any pre-deposit during pendency of appeal.

Issues Involved:
1. Refusal to stay the recovery of demand during the pendency of the appeal.
2. Application of CBDT guidelines for stay of demand.
3. Parameters for deciding stay applications during the pendency of the appeal.
4. Exceptional circumstances warranting stay without pre-deposit.
5. Applicability of precedents cited by both parties.

Detailed Analysis:

1. Refusal to Stay the Recovery of Demand During the Pendency of the Appeal:
The petitioner challenged the order dated 25.11.2016, which declined to stay the recovery of demand for the assessment year 2013-14 during the appeal process. The petitioner argued that the order was arbitrary and lacked application of mind. The court noted that the reasons for rejecting the stay were not provided, which is fundamental for sound administration of justice. The court emphasized that brief reasons must be stated to indicate application of mind and to inform the aggrieved party of the decision's basis.

2. Application of CBDT Guidelines for Stay of Demand:
The court examined the CBDT office memorandum dated 29.02.2016, which modified the guidelines for stay of demand. According to the guidelines, a stay of demand could be granted upon payment of 15% of the disputed demand. However, the guidelines also allowed for situations where a higher or lower amount could be warranted based on specific circumstances. The court found that the impugned order did not consider these guidelines appropriately and failed to provide reasons for not staying the demand.

3. Parameters for Deciding Stay Applications During the Pendency of the Appeal:
The court referred to the parameters set out in the case of Kec International Ltd. Versus B.R. Balakrishnan, which included setting out the assessee's case, considering financial difficulties, and avoiding coercive measures during the appeal period. The court agreed with these parameters and directed that they should be followed by assessing/appellate authorities in Punjab, Haryana, and Chandigarh.

4. Exceptional Circumstances Warranting Stay Without Pre-Deposit:
The court noted that the petitioner institute was set up and maintained by the State Government with the objective of enhancing patient care quality. The petitioner had a prima facie case, and the demand for previous years had already been stayed upon depositing 15%. The court found that the petitioner was not a willful defaulter and that exceptional circumstances warranted staying the demand without any pre-deposit during the appeal.

5. Applicability of Precedents Cited by Both Parties:
The respondents cited several judgments to argue against granting the stay. The court distinguished these cases based on their facts and found them not applicable to the present case. Specifically, the court noted that the judgment in Assistant Collector of Central Excise, Chandan Nagar v. Dunlop India Ltd. allowed for stay in exceptional circumstances, which were present in this case. The court also distinguished the cases of Kanav Khanna and Air Transport Co. based on their specific facts and circumstances.

Conclusion:
The court allowed the petition, set aside the impugned order dated 25.11.2016, and granted a stay of demand during the pendency of the appeal before the CIT. The court directed that the parameters laid down in Kec International Ltd. should be followed by assessing/appellate authorities in future cases. The decision emphasized the need for providing reasons in orders rejecting stay applications and recognized the exceptional circumstances of the petitioner's case.

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