2025 (3) TMI 1228 - HC - Income Tax

Stay on the recovery proceedings - requirement of paying 20% of the disputed demand - HELD THAT - Department has followed the prescribed procedure in accordance with the provisions of the Income Tax Act 1961 and the relevant CBDT instructions. The assessee has failed to comply with the mandatory requirement of paying 20% of the disputed demand as stipulated under CBDT Instruction No.1914 dated 21.03.1996 and the Office Memorandum dated 31.07.2017. The documentary evidence produced by the assessee does not substantiate the claim of financial hardship to the extent required to justify non-payment of the disputed demand. This Court is of the opinion that the Department has acted within its authority and the refusal to grant a stay on recovery proceedings is justified. The mere filing of an appeal before the Commissioner of Income Tax (Appeals) does not automatically entitle the assessee to a stay of the collection of the demand without fulfilling the pre-conditions as prescribed. Writ Petition is dismissed. The assessee is directed to comply with the requirement of paying 20% of the disputed demand for the Assessment Year 2019-2020 in accordance with the relevant CBDT instructions and Office Memorandums.

Summary

ISSUES PRESENTED and CONSIDERED

The primary legal issues considered in this judgment are:

1. Whether the petitioner is entitled to a stay on the recovery proceedings initiated by the tax authorities pending the disposal of the appeal filed against the assessment order for the Assessment Year 2019-2020.

2. Whether the petitioner has complied with the mandatory requirement of depositing 20% of the disputed tax demand as a precondition for granting a stay, as per the CBDT instructions and Office Memorandums.

3. Whether the petitioner has adequately demonstrated financial hardship to justify a waiver or reduction of the 20% pre-deposit requirement.

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Entitlement to Stay on Recovery Proceedings

- Relevant legal framework and precedents: The Income Tax Act, 1961, and relevant CBDT instructions, particularly Instruction No.1914 dated 21.03.1996 and Office Memorandum dated 31.07.2017, govern the conditions under which a stay on recovery proceedings can be granted.

- Court's interpretation and reasoning: The Court emphasized that the mere filing of an appeal does not automatically entitle the petitioner to a stay on recovery proceedings. The petitioner must fulfill specific preconditions, including the payment of 20% of the disputed demand.

- Application of law to facts: The Court found that the petitioner did not meet the precondition of paying 20% of the disputed demand, which is necessary to obtain a stay on recovery proceedings.

- Treatment of competing arguments: The petitioner argued for a stay based on financial hardship, while the respondents maintained that compliance with the preconditions is mandatory. The Court sided with the respondents, noting the lack of compliance with the precondition.

- Conclusions: The Court concluded that the petitioner is not entitled to a stay on recovery proceedings due to non-compliance with the mandatory precondition of depositing 20% of the disputed demand.

Issue 2: Compliance with the 20% Pre-Deposit Requirement

- Relevant legal framework and precedents: CBDT Instruction No.1914 and the Office Memorandum dated 31.07.2017 require the payment of 20% of the disputed demand as a precondition for granting a stay on recovery.

- Court's interpretation and reasoning: The Court noted that the petitioner failed to pay the requisite 20% of the disputed demand, which is a binding requirement under the relevant instructions.

- Key evidence and findings: The petitioner deposited only Rs. 1,25,000/- as a gesture of bona fides, which is significantly less than the 20% requirement.

- Application of law to facts: The Court applied the CBDT instructions and found the petitioner in violation due to the failure to deposit the required amount.

- Treatment of competing arguments: The petitioner argued financial incapacity, while the respondents insisted on adherence to the instructions. The Court upheld the respondents' position.

- Conclusions: The Court concluded that the petitioner did not comply with the 20% pre-deposit requirement, justifying the refusal to grant a stay.

Issue 3: Demonstration of Financial Hardship

- Relevant legal framework and precedents: The CBDT instructions allow for consideration of financial hardship in determining the necessity of the 20% pre-deposit.

- Court's interpretation and reasoning: The Court found that the petitioner failed to provide sufficient documentary evidence to substantiate claims of financial hardship.

- Key evidence and findings: The petitioner submitted income returns and documents, but they were deemed inadequate to demonstrate financial hardship.

- Application of law to facts: The Court applied the requirement for clear evidence of financial hardship and found the petitioner's submissions lacking.

- Treatment of competing arguments: The petitioner claimed financial hardship, but the respondents argued that the evidence was insufficient. The Court agreed with the respondents.

- Conclusions: The Court concluded that the petitioner failed to demonstrate financial hardship sufficient to justify a waiver or reduction of the 20% pre-deposit requirement.

SIGNIFICANT HOLDINGS

- Core principles established: The judgment reinforces the principle that compliance with preconditions, such as the 20% pre-deposit, is mandatory for obtaining a stay on recovery proceedings. The mere filing of an appeal does not entitle an assessee to an automatic stay.

- Final determinations on each issue: The Court dismissed the writ petition, directing the petitioner to comply with the 20% payment requirement and noting that failure to do so will result in coercive recovery measures.

- Verbatim quotes of crucial legal reasoning: "The mere filing of an appeal before the Commissioner of Income Tax (Appeals) does not automatically entitle the assessee to a stay of the collection of the demand without fulfilling the pre-conditions as prescribed."