2025 (1) TMI 185 - HC - Income Tax

Stay application rejected - petitioner directed to deposit 20% of the demand - HELD THAT - The respondent authorities has passed the assessment order dated 31.03.2024 passed u/s 143 (3) along with copy of demand notice issued under Section 156 against the petitioner. Thereafter the petitioner has filed an application u/s 220 (6) of the Income Tax Act, 1961 filed on 29.04.2024 before respondent No. 3. The respondent-No. 3 has not decided the case on the basis of prima facie case, balance of convenience, irreparable loss caused to the petitioner, Genuine hardship, CBDT instruction and hi-pitched assessment. The respondent No. 3 rejected the application without reasoned and speaking order on 14.06.2024. Subsequently, aggrieved of the same, the petitioner has filed review application before the respondent No. 2/PCIT (Central) Bhopal. The respondent No. 2 has also not decided the review application on merits and passed the order to pay 20% of the tax liability by way of installments in 5 months on. 18.10.2024. Thus, the impugned orders dated 14.06.2024 and 18.10.2024 are non-speaking orders. AO has not adopted the correct procedure in deciding the stay application and review application of the petitioner and has not followed the guidelines as stated by Bombay High court in KEC International Ltd. 2001 (3) TMI 32 - BOMBAY HIGH COURT and in UTI Mutual Fund 2012 (3) TMI 333 - BOMBAY HIGH COURT and also the decision rendered by this Court in M/s Aarti Sponge Power Ltd. 2018 (4) TMI 1284 - CHHATTISGARH HIGH COURT .

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

Whether the orders dated 14.06.2024 and 18.10.2024 rejecting the stay application and review application were non-speaking and cryptic, lacking adequate reasoning and consideration of the petitioner's submissions.
Whether the rejection of the applications by the tax authorities was in violation of the principles of natural justice, specifically the requirement to provide an opportunity for a hearing and to apply the trinity principle (prima facie case, financial stringency, and balance of convenience).
Whether the tax authorities failed to adhere to the guidelines established by the Bombay High Court in KEC International Ltd. and UTI Mutual Fund regarding the treatment of stay applications pending appeal.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Non-speaking and cryptic orders

Relevant legal framework and precedents: The requirement for reasoned orders is grounded in the principles of natural justice. The Bombay High Court in KEC International Ltd. and UTI Mutual Fund outlined the necessity for authorities to provide reasons when deciding stay applications.
Court's interpretation and reasoning: The court found that the orders dated 14.06.2024 and 18.10.2024 were non-speaking as they did not provide any reasoning or address the petitioner's arguments.
Key evidence and findings: The orders failed to set out the case of the assessee or provide any rationale for rejecting the stay and review applications.
Application of law to facts: The court applied the guidelines from KEC International Ltd., emphasizing the need for reasoned orders.
Treatment of competing arguments: The respondents supported the impugned orders, but the court found their arguments insufficient to justify the lack of reasoning.
Conclusions: The impugned orders were set aside for being non-speaking and not adhering to established legal guidelines.

Issue 2: Violation of principles of natural justice

Relevant legal framework and precedents: The principles of natural justice require that affected parties be given a fair opportunity to present their case, and decisions should be made with due consideration of all relevant factors.
Court's interpretation and reasoning: The court held that the tax authorities failed to apply the trinity principle and did not provide the petitioner an opportunity for a hearing, thus violating natural justice.
Key evidence and findings: The authorities did not consider the petitioner's submissions regarding financial hardship and the balance of convenience.
Application of law to facts: The court emphasized that the authorities must apply the trinity principle when deciding on stay applications.
Treatment of competing arguments: The respondents argued that the orders were justified, but the court found this unpersuasive due to the lack of procedural fairness.
Conclusions: The court concluded that the orders were issued in violation of natural justice principles.

Issue 3: Adherence to guidelines from KEC International Ltd. and UTI Mutual Fund

Relevant legal framework and precedents: The guidelines from KEC International Ltd. and UTI Mutual Fund require authorities to provide a reasoned decision when dealing with stay applications.
Court's interpretation and reasoning: The court noted that the tax authorities did not follow these guidelines, which are essential for ensuring fairness in administrative decision-making.
Key evidence and findings: The authorities did not provide any reasoning or consider the petitioner's financial situation and other relevant factors.
Application of law to facts: The court applied these guidelines to determine that the authorities' actions were procedurally flawed.
Treatment of competing arguments: The respondents' support for the orders was deemed inadequate given the clear procedural lapses.
Conclusions: The court found the authorities' failure to follow established guidelines as a basis for setting aside the orders.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: The court emphasized the necessity for reasoned orders, quoting: "This is the consequence of an order being passed without giving any reasons. Hence, we intend to lay down certain parameters which are required to be followed by the authorities in cases where a stay application is made by an assessee pending appeal to the first appellate authority."
Core principles established: The judgment reinforced the requirement for tax authorities to provide reasoned orders and adhere to the principles of natural justice, including the trinity principle, when deciding stay applications.
Final determinations on each issue: The court set aside the impugned orders and directed the tax authorities to reconsider the stay application, ensuring adherence to the guidelines and principles discussed.

The court ordered that no coercive steps be taken against the petitioner until the stay application is reconsidered, and directed the petitioner to appear before the relevant authority on a specified date.

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