2018 (4) TMI 1284 - HC - Income Tax

Application for stay of the disputed demand - reduction of 20% deposit - Held that - The appeal proceedings are separate and distinct from recovery proceedings and further proceeded to hold that 20% of the disputed demand has not been deposited in accordance with the guidelines dated 31-7-2017 and passed the order dated 7-3-2018. It is quite vivid that the application for stay of demand has not been considered in the manner it was required to be considered and dealt with. Deposit of 20% of the disputed demand has been made condition precedent for hearing the application for stay which is not contemplated either under the Act of 1961 or the CBDT guidelines dated 29-2-2016 modified by the office memorandum dated 31-7-2017. It is only when the competent authority is of the opinion that the assessee has made out a case for grant of interim relief, stay can be granted subject to deposit of 20% of the disputed demand. Likewise, there is a further clause in the circular for reduction of 20% deposit if the petitioner makes out a case, it has also not been considered. In straightway, direction of deposit of 20% of the disputed demand has been made which is not the correct way of deciding the application for stay of the disputed demand. Set aside and the matter is remitted to the competent authority to consider afresh the matter

Issues Involved:

1. Legality of the pre-condition of 20% deposit for stay of demand.
2. Consideration of the stay application on merits by the assessing officer.
3. Availability of alternative remedy for the petitioner.
4. Binding nature and interpretation of CBDT circulars.

Detailed Analysis:

1. Legality of the Pre-condition of 20% Deposit for Stay of Demand:

The petitioner challenged the requirement imposed by the assessing officer to deposit 20% of the disputed demand as a pre-condition for considering the stay application. The petitioner argued that the circular issued by the Central Board of Direct Taxes (CBDT) under Section 119(1)(a) of the Income Tax Act, 1961 has the force of law, but the assessing officer must consider the stay application on merits first. The court agreed with this contention, stating that the pre-deposit of 20% cannot be a condition precedent for hearing the stay application. The court emphasized that the condition of pre-deposit is neither contemplated by the memorandum nor has legislative sanction mandating such deposit for the hearing of an application for stay.

2. Consideration of the Stay Application on Merits by the Assessing Officer:

The court noted that the assessing officer failed to consider the stay application on its merits and instead imposed the pre-condition of a 20% deposit. The court referred to the guidelines laid down by the Bombay High Court in KEC International Ltd. v. B.R. Balakrishnan and Others, which require the authority to set out the case of the assessee, consider financial difficulties, and provide brief reasons for the decision. The court found that the assessing officer did not follow these guidelines and merely insisted on the 20% deposit, which was not the correct approach.

3. Availability of Alternative Remedy for the Petitioner:

The respondents argued that the petitioner had an alternative remedy to approach the Principal Commissioner of Income Tax for a review of the decision of the assessing officer. However, the court overruled this plea, stating that the provision for review is available only when a stay has been granted subject to payment of 15% of the disputed demand. In this case, no stay was granted, and hence, no alternative remedy was available to the petitioner.

4. Binding Nature and Interpretation of CBDT Circulars:

The court reiterated that CBDT circulars have the force of law and are binding on income tax authorities. The court cited the Supreme Court decisions in UCO Bank, Calcutta v. Commissioner of Income Tax and Catholic Syrian Bank Limited v. Commissioner of Income Tax, which affirmed that CBDT can issue circulars to tone down the rigour of the law and ensure fair enforcement. The court emphasized that these circulars cannot be enforced adversely against the assessee and must be considered while deciding applications for stay.

Conclusion:

The court set aside the impugned orders dated 7-3-2018, which required the petitioner to deposit 20% of the disputed demand as a pre-condition for considering the stay application. The matter was remitted to the competent authority to reconsider the stay application on merits, following the guidelines laid down by the Bombay High Court. The court directed the authority to pass a reasoned order within two weeks after hearing the parties. The writ petitions were allowed to this extent, with no costs awarded to either party.

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