2022 (3) TMI 1141 - HC - Income Tax

Stay of demand - Proceedings initiated under Section 201(1)/201(1A) - 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. 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.

Summary

Issues:
Challenging orders directing deposit of 20% of outstanding demand, seeking stay of recovery proceedings, re-characterization of purchase of shares as depreciable assets, application for stay rejected, direction to deposit 20% of demand, relaxation of pre-condition for deposit, non-reasoned orders, setting aside impugned orders, remanding for fresh adjudication, granting personal hearing, no coercive action till stay application decided.

Analysis:
The petitioner filed a writ petition challenging multiple orders directing the deposit of 20% of the outstanding demand and seeking a stay on recovery proceedings. The petitioner purchased unlisted equity shares and deducted TDS, but proceedings were initiated under Section 201(1)/201(1A) of the Income Tax Act. The order re-characterized the purchase as depreciable assets, leading to a substantial demand. The petitioner appealed to CIT(A) and applied for a stay on demand recovery, but the Assessing Officer directed the deposit of 20% without considering the petitioner's submissions.

The petitioner's application for review/stay was rejected, stating the need for pre-payment of 20% of the disputed demand. Subsequent requests for review were also met with orders to deposit 20% without reasons provided. The respondent argued that the transaction was a device to avoid tax and justified the deposit requirement based on relevant Office Memorandums. However, the Court found that the deposit condition could be relaxed in certain cases, citing instances where appellate authorities ruled in favor of the assessee.

Referring to a Supreme Court judgment, the Court emphasized that tax authorities have the discretion to grant stay on depositing amounts less than 20% based on individual case circumstances. Critically, the impugned orders were non-reasoned and failed to consider key principles like prima facie case, balance of convenience, and irreparable injury when deciding stay applications. Consequently, the Court set aside the orders, remanding the matter for fresh adjudication with a personal hearing granted to the petitioner's representative.

The Court directed the Commissioner of Income Tax to decide the stay application after the personal hearing and prohibited any coercive action until then. The writ petition was disposed of with these directions, ensuring a fair process in the adjudication of the petitioner's case.