2022 (11) TMI 1262 - HC - Income Tax

Stay of demand - recovery proceedings - pre-condition for grant of stay of recovery - pre-condition for deposit of 20% of the total demand - HELD THAT - The stay application has come to be dismissed by way of impugned order that contains a fatal flaw, being that the Assessing Authority proceeds on the basis that there is a pre-condition for deposit of 20% of the total demand for the grant of stay till disposal of first appeal. This view patently erroneous insofar as the Income Tax Act does not provide for any pre-condition for grant of stay of recovery, as this Court has made clear on several occasions. Office Memorandum (OM) referred to by the Assessing Authority in F.No.404/72/93-ITCC dated 31.07.2017 only increases the rate of disputed demand from 15% as set out under Instruction No.1914 dated 21.03.1996 to 20%. However, the actual tax to be demanded, ranging from 0% to 100%, would depend upon the existence of three factors, viz., (i) prima facie case, (ii) financial stringency and (iii) balance of convenience and it is only upon a consideration of the aforesaid factors that the officer would dispose an application for stay. This discussion does not find place in the present impugned order and rather, the Assessing Authority proceeds on the basis that 20% is the standard demand that the petitioner must be called upon to remit. Thus impugned order is quashed. The stay petition is restored to the file of the Assessing Officer, who shall call upon the assessee, consider materials, if any, placed by the assessee before him in support of the aforesaid three conditions and pass orders upon the stay application, within a period of six (6) weeks from today.

Summary

Issues:
1. Challenge to assessment order under Income Tax Act, 1961.
2. Dismissal of stay application under Section 220(6) of the Act.
3. Interpretation of pre-conditions for grant of stay of recovery.
4. Application of Office Memorandum in determining disputed demand.
5. Quashing of impugned order and restoration of stay petition to Assessing Officer.

Detailed Analysis:
1. The petitioner had previously challenged an assessment order dated 30.12.2019 under the Income Tax Act, 1961, for the assessment year 2017-18. The earlier Writ Petition was disposed on 29.09.2022, noting that the petitioner had also filed a statutory appeal and a stay application under Section 220(6) of the Act.

2. The stay application was dismissed by an order dated 27.10.2022, which was found to contain a fatal flaw. The Assessing Authority had imposed a pre-condition of depositing 20% of the total demand for granting a stay till the disposal of the first appeal. However, it was highlighted that the Income Tax Act does not mandate such a pre-condition for the grant of stay, as reiterated by the Court in previous instances.

3. The Assessing Authority's reliance on an Office Memorandum dated 31.07.2017 was found to be flawed. While the memorandum increased the disputed demand rate from 15% to 20%, the actual tax demand could vary from 0% to 100% based on factors like prima facie case, financial stringency, and balance of convenience. The impugned order failed to consider these factors and erroneously assumed 20% as a standard demand for the petitioner.

4. Consequently, the Court quashed the impugned order dated 27.10.2022 and directed the restoration of the stay petition to the Assessing Officer. The Officer was instructed to evaluate the petitioner's submissions regarding the three conditions mentioned earlier and make a decision on the stay application within six weeks. Until then, no recovery proceedings were to be initiated.

5. The Writ Petition was disposed of accordingly, without imposing any costs, and connected Miscellaneous Petitions were closed. The judgment clarified the correct procedure for granting stays in income tax matters, emphasizing the need for a holistic assessment of relevant factors rather than a rigid imposition of pre-conditions.