2023 (12) TMI 933 - HC - Income Tax

Stay of demand during the pendency of the petitioner s appeal before CIT (A) - petitioner states that the discretion to stay the demand during the pendency of an appeal has to be exercised judiciously and reasonably, based on relevant grounds, with due application of mind, and must not be exercised arbitrarily or capriciously or based on irrelevant considerations - He contends that doubting of genuineness of the transaction is based on considerations alien to Section 68 for which the Assessee is only required to show legitimate receipt of the money from the claimed person through normal banking channels, which has been undisputedly proven by the petitioner - HELD THAT - Undoubtedly, the power vested u/s 220(6) of the Act, 1961 is discretionary and it is not mandatory to pre-deposit 20% of the assessed amount to obtain stay of deposit at the stage of filing the appeal before the CIT (Appeals). In the present case, AO in the assessment order has given a number of cogent findings against the petitioner. In fact, the AO after analyzing a number of relevant facts has virtually held that the transaction between the petitioner and the foreign entity was based on reverse engineering . Keeping in view the aforesaid findings, this Court is of the view that the petitioner has not been able to make out a prima facie case in its favour. To put it mildly, the petitioner has a lot to answer in the appeal. The petitioner s plea of financial stringency based on its balance-sheet also inspires no confidence as according to the Assessing Officer, the accounts have not been properly maintained. Accordingly, the writ petition is dismissed. However, this Court clarifies that the findings given by this Court are only in the context of the present writ proceedings and shall not prejudice either of the parties at the stage of the appellate proceedings.

Summary

Issues Involved:
1. Challenge to the dismissal of the application for stay of demand.
2. Examination of the discretionary power under Section 220(6) of the Income Tax Act, 1961.
3. Analysis of the genuineness of the transactions and financial stringency claims.

Summary:

1. Challenge to the Dismissal of the Application for Stay of Demand:
The petitioner filed a petition challenging the orders dated 3rd November 2023 and 20th February 2023, which dismissed their application for stay of demand during the pendency of the appeal before the Commissioner of Income Tax (Appeals). The petitioner sought a stay of demand during the appeal process against the assessment order dated 30th December 2022.

2. Examination of the Discretionary Power under Section 220(6) of the Income Tax Act, 1961:
The petitioner argued that the discretion to stay the demand must be exercised judiciously and reasonably, not arbitrarily or capriciously. They contended that the impugned orders were arbitrary and lacked application of mind. The petitioner emphasized that they had a strong prima facie case, with legitimate receipts disclosed in the ITR, and that the Service Agreement with Justice and Education Fund Inc. (JEF) was genuine. The petitioner cited the Supreme Court ruling in CIT V. LG Electronics India (P) Ltd., (2018) 18 SCC 447, stating that pre-deposit is not mandatory for granting stay under Section 220(6).

3. Analysis of the Genuineness of the Transactions and Financial Stringency Claims:
The court noted that the Assessing Officer's findings raised significant doubts about the genuineness of the transactions between the petitioner and JEF. The assessment order highlighted issues such as predetermined funds, lack of linkage between receipts and expenses, and the absence of exclusive ownership rights over the content. The court found that the petitioner had not established a prima facie case and had a "lot to answer" in the appeal. Additionally, the petitioner's claim of financial stringency based on their balance sheet was not convincing, as the accounts were not properly maintained. The court cited an instance where a payment was made to an individual who denied providing any services, further questioning the petitioner's financial claims.

Conclusion:
The court dismissed the writ petition, stating that the petitioner failed to make a prima facie case for stay of demand. The findings were limited to the context of the writ proceedings and would not prejudice the parties in the appellate proceedings.