Delhi HC explains the entire law and jurisprudence on 'Stay of Demand' applications under Income Tax Act, 1961 ('Act') in the case of NASSCOM Vs DCIT(E) (W.P.(C) 9310/2022). Read more to understand the law on Stay of Demand applications.
INTRODUCTION
For AY 2018-19 NASSCOM had filed it's Return claiming a refund of Rs. 6.45 crores. Subsequently during assessment proceedings u/s 143(3), additions were made and which led to a demand of Rs. 10.26 crores. Aggrieved, NASSCOM filed an appeal before CIT(A). Simultaneously, NASSCOM had also applied for Stay of Demand with the CIT(A) under section 220(6) of the Act. During the pendency of the appeal before CIT(A), and without attending to the stay application which had been moved, the AO proceeded to adjust the entire amount demand against refunds for subsequent A.Y.s.
STATUTORY PROVISION, CIRCULARS & OFFICE MEMORANDUM
"Section 220(6): Where an assessee has presented an appeal under section 246 or section 246A the Assessing Officer may, in his discretion and subject to such conditions as he may think fit to impose in the circumstances of the case, treat the assessee as not being in default in respect of the amount in dispute in the appeal, even though the time for payment has expired, as long as such appeal remains undisposed of."
Office Memorandum (F. NO. 404/72/93-ITCC dt 29-2-2016)
"(A) In a case where the outstanding demand is disputed before CIT (A), the assessing officer shall grant stay of demand till disposal of first appeal on payment of 15% of the disputed demand, unless the case falls in the category discussed in para (B) hereunder.
(B) In a situation where,
(a) the assessing officer is of the view that the nature of addition resulting in the disputed demand is such that payment of a lump sum amount higher than 15% is warranted or,
(b) the assessing officer is of the view that the nature of addition resulting in the disputed demand is such that payment of a lump sum amount lower than 15% is warranted, the assessing officer shall refer the matter to the administrative Pr. CIT/CIT, who after considering all relevant facts shall decide the quantum/proportion of demand to be paid by the assessee as lump sum payment for granting a stay of the balance demand.
(C) In a case where stay of demand is granted by the assessing officer on payment of 15% of the disputed demand and the assessee is still aggrieved, he may approach the jurisdictional administrative Pr. CIT/CIT for a review of the decision of the assessing officer."
Office Memorandum (F. NO. 404/72/93-ITCC dt 31-7-2017)
"Thus, all references to 15% of the disputed demand in the aforesaid O.M dated 29-2-2016 hereby stand modified to 20% of the disputed demand."
LEGAL JURISPRUDENCE
Is it mandatory that 20% demand has to be paid for Stay of Demand?
As per the above provision & office memos, it is clear that it is untenable and incorrect to force an assessee to pay the pre-deposit of 20% before granting stay on the recovery of demand. Both the memos, neither prescribe nor mandate for payment of 20% of the outstanding demand. The same was confirmed by Supreme Court in PCIT and Others vs. LG Electronics India Private Limited [(2018) 18 SCC 447)]:
"..the administrative circular will not operate as a fetter on the Commissioner since it is a quasi-judicial authority, we only need to clarify that in all cases like the present, it will be open to the authorities, on the facts of individual cases, to grant deposit orders of a lesser amount than 20%, pending appeal."
The same was also reiterated in following cases:
Avantha Realty Ltd. vs PCIT & Anr [WP(C) 2615/2024, Order dated 21 February 2024]
Dabur India Limited vs CIT (TDS) & Anr [2022 SCC OnLine Del 3905]
Does paying 20% of demand automatically stay the demand from Recovery?
Recently in Indian National Congress vs DCIT & Ors. [Neutral Citation – 2024:DHC:2016-DB] Delhi HC observed that:
"The OM is not liable to be read as conferring an indefeasible right upon the assessee to claim a stay of a tax liability by merely offering or consenting to deposit 20% of the outstanding liability. Ultimately, it is for the authorities to examine and consider what amount would be sufficient to securitise the interest of the Revenue and thus a just balance being struck. The quantum of the deposit that would be required to be made would ultimately depend upon the facts and circumstances of each case." and
"The position which thus emerges is that 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 (Tax Department) based upon a consideration of issues such as prima facie, financial hardship and the likelihood of success."
No rule of universal application for staying demand
The Supreme Court in Benara Valves Ltd. & Ors. Vs Commissioner of Central Excise & Anr. [(2006) 13 SCC 347] stated in golden words that:
"Petitions for stay should not be disposed of in a routine matter, unmindful of the consequences flowing from the order requiring the assessee to deposit full or part of the demand. There can be no rule of universal application in such matters and the order has to be passed keeping in view the factual scenario involved. Merely because this Court has indicated the principles that does not give a license to the forum/authority to pass an order which cannot be sustained on the touchstone of fairness, legality and public interest. Where denial of interim relief may lead to public mischief, grave irreparable private injury or shake a citizen’s faith in the impartiality of public administration, interim relief can be given."
JUDGEMENT OF DELHI HC
Finally after considering the above legal jurisprudence the Delhi HC ordered that:
"The respondents have thus in our considered opinion clearly acted arbitrarily in proceeding to adjust the demand for AY 2018-19 against available refunds without attending to that application. This action of the respondents is wholly arbitrary and unfair. The intimation of adjustments being proposed would hardly be of any relevance or consequence once it is found that the application for stay remained pending and the said fact is not an issue of contestation."
CONCLUSION
This order of the Delhi HC completely encapsulates all the aspects regarding stay of demand at the CIT(A) level. The Office Memo does not mandate the deposit of 20% of demand for stay of demand nor gives the taxpayer and undisputed right for stay of demand on payment of 20% of the demand. This judgement should now rest the case for further litigation on the matters of stay on both sides of the table.
To understand the judgement and its implications on your pending tax demands, feel free to contact us.
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