2024 (4) TMI 198 - HC - Income Tax

Stay of demand - direction to depositing 40% of the outstanding demand - pre-condition for the consideration of application for stay - HELD THAT - PCIT, rather than examining the challenge raised by the petitioner to the assessment orders and evaluating the prima facie merits of the challenge has in one sense placed it under a harsher burden of depositing 40% of the outstanding demand as opposed to the direction framed by the second respondent, which had merely insisted upon the petitioner depositing 20% as a pre-condition for the consideration of its application for stay. In any view of the matter, we find that both the authorities have failed to deal with the aspect of prima facie merits, likelihood of success and undue hardship. The impugned orders are consequently rendered wholly unsustainable on the aforesaid score alone. We accordingly allow the instant writ petition and quash the impugned orders passed by the second and first respondents respectively. The matter shall consequently stand remitted to the board of the AO which shall examine the applications for stay afresh and bearing in mind the legal position as enunciated in NASSCOM 2024 (3) TMI 773 - DELHI HIGH COURT

Summary

Issues Involved:
1. Validity of orders dated 22 November 2021 and 27 February 2024 regarding stay applications for outstanding tax demands.
2. Legality of requiring a 20% deposit of the outstanding demand as a pre-condition for considering stay applications.
3. Evaluation of prima facie merits, likelihood of success, and undue hardship in stay applications.

Summary:

1. Validity of Orders Dated 22 November 2021 and 27 February 2024:
The petitioner challenged the orders dated 22 November 2021 and 27 February 2024, which disposed of stay applications for outstanding tax demands for AYs 2010-11 to 2020-21. The second respondent rejected the stay application on 22 November 2021 due to the petitioner not depositing 20% of the outstanding demand, based on CBDT Office Memorandums (OMs) dated 29 February 2016 and 31 July 2017. The first respondent, on 27 February 2024, required the petitioner to deposit 40% of the outstanding demand within 15 days as a condition for staying the remaining balance.

2. Legality of Requiring a 20% Deposit:
The court noted that the impugned orders were based on the erroneous assumption that stay applications could not be entertained without a 20% deposit. The court emphasized that the CBDT's OMs do not mandate a 20% deposit as an inflexible condition. The OMs provide guidance and allow discretion based on the facts of each case. The court cited precedents, including the Supreme Court's decision in Principal Commissioner of Income Tax & Ors. vs LG Electronics India Pvt. Ltd., which clarified that the administrative circular should not fetter the Commissioner's discretion.

3. Evaluation of Prima Facie Merits, Likelihood of Success, and Undue Hardship:
The court found that both respondents failed to consider the prima facie merits, likelihood of success, and undue hardship in the petitioner's case. The court referred to its previous judgment in NASSCOM, which outlined that stay applications must be evaluated based on these factors. The court also highlighted that the first respondent's decision to require a 40% deposit was more onerous than the second respondent's 20% requirement, without proper consideration of the legal principles involved.

Conclusion:
The court quashed the impugned orders dated 22 November 2021 and 27 February 2024 and remitted the matter to the AO for fresh consideration of the stay applications, in light of the legal principles enunciated in NASSCOM. All rights and contentions of the parties were kept open.