2024 (3) TMI 773 - HC - Income Tax

Validity of Adjusting Disputed Tax Demand Against Refunds Without Considering Stay Application - Stay of demand - pre-deposit prescriptions - grant of stay pending appellate remedies - petitioner has prayed for the refund being processed after adjustment of 20% of the disputed demand for AY 2018-19 - HELD THAT - In our considered opinion, the respondents have proceeded on a wholly incorrect and untenable premise that the assessee was obliged to tender or place evidence of having deposited 20% of the disputed demand before its application for stay under Section 220(6) of the Act could have been considered. The interpretation which is sought to be accorded to the aforesaid OM is clearly misconceived for the following reasons. It must at the outset be noted that the two OMs noticed above neither prescribe nor mandate 15% or 20% of the outstanding demand as the case may be, being deposited as a pre-condition for grant of stay. The OM dated 29 February 2016 specifically spoke of a discretion vesting in the AO to grant stay subject to a deposit at a rate higher or lower than 15% dependent upon the facts of a particular case. The subsequent OM merely amended the rate to be 20%. In fact, while the subsequent OM chose to describe the 20% deposit to be the standard rate , the same would clearly not sustain in light of the discussion which ensues. More recently in Indian National Congress vs Deputy Commissioner of Income Tax Central 19 Ors. 2024 (3) TMI 669 - DELHI HIGH COURT we had an occasion to examine the scope of the power conferred by Section 220(6) wherein as held 20% which is spoken of in the OM cannot possibly be viewed as being an inviolate or inflexible condition. The extent of the deposit which an assessee may be called upon to make would have to be examined and answered bearing in mind factors such as prima facie case, undue hardship and likelihood of success. We note that while dealing with the question of the claim of stay as made by an assessee and the competing obligation to protect the interest of the Revenue, the Supreme Court in Benara Valves Ltd. Ors. Vs Commissioner of Central Excise Anr. 2006 (11) TMI 6 - SUPREME COURT wherein held for a hardship to be 'undue' it must be shown that the particular burden to observe or perform the requirement is out of proportion to the nature of the requirement itself, and the benefit which the applicant would derive from compliance with it. The word undue adds something more than just hardship. It means an excessive hardship or a hardship greater than the circumstances warrant. Though some of the decisions noticed by us hereinabove pertained to pre-deposit prescriptions placed by a statute, the principles enunciated therein would clearly be of relevance while examining the extent of the power that stands placed in the hands of the AO in terms of Section 220(6) of the Act. In our considered opinion, the respondents have clearly erred in proceeding on the assumption that the application for consideration of outstanding demands being placed in abeyance could not have even been entertained without a 20% pre-deposit. The aforesaid stand as taken is thoroughly misconceived and wholly untenable in law. Undisputedly, and on the date when the impugned adjustments came to be made, the application moved by the petitioner referable to Section 220(6) of the Act had neither been considered nor disposed of. The respondents have thus in our considered opinion clearly acted arbitrarily in proceeding to adjust the demand for AY 2018-19 against available refunds without attending to that application. This action of the respondents is wholly arbitrary and unfair. The intimation of adjustments being proposed would hardly be of any relevance or consequence once it is found that the application for stay remained pending and the said fact is not an issue of contestation. WP allowed.

Summary

Issues Involved:
1. Adjustment of disputed tax demand against refunds due.
2. Non-consideration of rectification and stay applications.
3. Legality of adjustments without considering Section 220(6) application.
4. Interpretation of Office Memorandum (OM) regarding stay of demand.

Summary:

Adjustment of Disputed Tax Demand Against Refunds Due:
The petitioner challenged the adjustment of a disputed tax demand for AY 2018-19 against refunds due for AYs 2010-11, 2011-12, and 2020-21. The petitioner argued that this adjustment was made despite pending rectification and stay applications.

Non-Consideration of Rectification and Stay Applications:
The petitioner filed a Return of Income (ROI) for AY 2018-19, claiming a refund. Notices under Sections 143(2) and 142(1) of the Income Tax Act, 1961 were issued, and an intimation under Section 143(1) indicated a refundable amount. However, subsequent assessments created a demand, leading the petitioner to appeal and file rectification and stay applications. The rectification application was rejected on grounds that the additions made were not mistakes apparent from the record.

Legality of Adjustments Without Considering Section 220(6) Application:
The petitioner argued that the adjustments were arbitrary and illegal as the stay application under Section 220(6) was not considered. The respondents adjusted the demand against refunds without attending to the stay application, which the petitioner claimed nullified the purpose of Section 220(6).

Interpretation of Office Memorandum (OM) Regarding Stay of Demand:
The petitioner contended that as per the Central Board of Direct Taxes (CBDT) OM dated 31 July 2017, the respondents could have required a deposit of 20% of the disputed demand. The respondents argued that the application for stay was not considered due to the absence of evidence of deposit. The court noted that the OMs do not mandate a 15% or 20% deposit as a pre-condition for grant of stay. The discretion vested in the Assessing Officer (AO) should not be viewed as cabined by the terms of the OM.

Court's Decision:
The court found that the respondents erred in assuming that the application for stay could not be entertained without a 20% pre-deposit. The court held that the respondents acted arbitrarily by adjusting the demand without considering the pending stay application. The court allowed the writ petition, remitting the matter to the respondents to consider the petitioner's application under Section 220(6) in accordance with the observations made. The issue of the amount of refund to be released will depend on the respondents' decision pursuant to the court's directions.