2024 (5) TMI 734 - HC - Income Tax

Stay of demand - direction as called upon the writ petitioner to make a pre-deposit of 20% - HELD THAT - We bear in mind that the 20% prescription which is spoken of is not an inviolable condition or a prescription etched in stone. We bear in mind in this regard the following observations as rendered in National Association of Software and Services Companies (NASSCOM) 2024 (3) TMI 773 - DELHI HIGH COURT as held while 20% is not liable to be viewed as an entrenched or inflexible rule, there could be circumstances where the respondents may be justified in seeking a deposit in excess of the above dependent upon the facts and circumstances that may obtain. This would have to necessarily be left to the sound exercise of discretion by the respondents based upon a consideration of issues such as prima facie, financial hardship and the likelihood of success. This observation we render being conscious of the indisputable position that the OM applies only upto the stage of the appeal pending before the CIT(A) and being of little significance when it comes to the ITAT. 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. Thus we find no merit in the challenge which stands raised.

Summary

Issues Involved:

1. Legality of the ITAT's order dated 05 April 2024.
2. Prima facie case and financial stringency of the petitioner.
3. Applicability of Section 68 of the Income Tax Act.
4. Requirement of pre-deposit for stay of demand.

Summary:

1. Legality of the ITAT's order dated 05 April 2024:
The writ petition challenges the ITAT's order dated 05 April 2024, which dealt with an application for stay of demand. The ITAT concluded that the provisions of Section 68 of the Income Tax Act were correctly invoked and found no prima facie case in favor of the petitioner. The ITAT's decision was based on concurrent findings of two quasi-judicial authorities against the petitioner, questioning the genuineness of the transaction.

2. Prima facie case and financial stringency of the petitioner:
An earlier writ petition (W.P.(C) 15337/2023) had been dismissed by the Court, which observed that the petitioner had not made out a prima facie case and had "a lot to answer" in the appeal. The Court also found the petitioner's plea of financial stringency unconvincing, as the accounts were not properly maintained. The ITAT reaffirmed this, stating that the petitioner had no prima facie case and the financials did not inspire confidence.

3. Applicability of Section 68 of the Income Tax Act:
The ITAT noted that the provisions of Section 68 of the Act place the initial burden on the assessee to explain the genuineness of the transaction. The ITAT found that the petitioner had not discharged this burden, and the tax authorities had valid concerns about the genuineness of the transaction. The ITAT observed that the same arguments and explanations raised by the petitioner lacked strength.

4. Requirement of pre-deposit for stay of demand:
The Court noted that the 20% pre-deposit requirement is not an inviolable condition. The discretion to grant stay subject to a deposit higher or lower than 20% depends on the facts of each case. The Court cited several precedents, including the Supreme Court's judgment in Principal Commissioner of Income Tax & Ors. vs LG Electronics India Pvt. Ltd., which clarified that administrative circulars do not fetter the quasi-judicial authority's discretion. The Court emphasized that the extent of the deposit should be examined based on factors like prima facie case, undue hardship, and likelihood of success.

Conclusion:
The Court found no merit in the challenge raised by the petitioner and dismissed the writ petition, upholding the ITAT's order and the requirement for the petitioner to approach the Assessing Officer with a plan to liquidate the disputed tax demand or seek securitization of the same.