No statutory requirement of pre-deposit for stay of demand under Income Tax Act – HC

There is no statutory requirement of pre-deposit for stay of demand under Income Tax Act – High Court stayed demand  

In a recent judgment, the Hon’ble High Court has stayed income tax demand and penalty holding that in a situation where serious prejudice may be caused to the petitioner, exemption from pre-deposit should have been granted by the Income Tax Officer.

ABCAUS Case Law Citation:
ABCAUS 3985 (2024) (04) HC

Important Case Laws relied upon:
Sant Raj & Anr vs O.P. Singla & Anr. (1985)2 SCC 349

The Petitioner assessee was a Charitable Society it was aggrieved by the dismissal of its application seeking stay of operation of the Notice for Penalty. The Petitioner had filed a Writ Petition praying a direction to the Income Tax Officials not to enforce and realize the outstanding demand pursuant to the assessment order and the Notice for Penalty under Section 274 read with Section 271F of the Income Tax Act, 1961 (the Act).

In the instant case, the petitioner-society had raised a grievance against the assessment  order passed u/s 147 of the Act making addition for cash deposits in bank accounts which followed the Notice for Penalty on the same day. Aggrieved thereby, the petitioner-society had preferred a statutory appeal filed under section 246A of the Act.

Before the Hon’ble High Court, the Revenue filed an affidavit admitting that the appeal preferred by the petitioner-society shall be disposed of within six months.

The Hon’ble High Court observed that the Assessing Officer (AO) while dismissing the application for stay of demand, relied upon on CBDT Instruction regarding the guidelines issued for procedure to be followed for recovery of outstanding demand.

According to the AO, as per CBDT Instruction the assessee can be granted the stay of the outstanding demand subject to the payment of 20% of the demand raised. The stay of the remaining demand, after the payment of 20% of the demand, may be granted for a period of 6 months or till the disposal of first appeal by the CIT(A), whichever is earlier. Also, the remaining demand may be stayed after the payment of 20% of the demand only if there are valid reasons for doing so. Mere filing of an appeal before the CIT(A) against the assessment order will not be sufficient ground and a valid reason for the stay of the recovery of demand.

Further the AO relied upon CBDT Circular dated 01.12.2009 affirming Instruction No. 1914, which clearly enlightens the duty, responsibility and the guidelines cast on the assessing authority for staying the demand.

The AO noted that as per the said CBDT Circular, demand will be stayed only if there are valid reasons for doing so. Mere filing an appeal against the assessment order will not be a sufficient reason to stay the recovery of demand.

The AO further stated that in the stay petition filed by the assessee neither any sort of “undue hardship” nor insufficient fund had been resorted to for stay of demand. Furthermore, there was sufficient liquidity with the assessee to pay 20% of the outstanding demand raised would not cause a genuine hardship to the assessee.

The Hon’ble High Court opined that a writ Court shall not generally entertain a writ petition intended to avoid the rigors of statutory pre-deposit such as section 19 of the Micro, Small and Medium Enterprises Development (MSMED) Act.

The Hon’ble High Court observed that the Hon’ble Supreme Court has held that discretion has to be exercised according to the rules of reason and justice and not according to private opinion. This is an admitted position that under the Income Tax Act, 1961 there is no statutory requirement of pre-deposit but by virtue of CBDT Memorandum dated 29th February 2016 such a requirement has been made mandatory.  This is also quite a well settled proposition in law that by Executive Instruction(s) a statutory provision can be supplemented or the gap can be filled in but no requirement contrary to the statutory law can be made.

The Hon’ble High Court further observed that when the petitioner-society had laid specific challenge to the assessment order on the ground that the cash deposits in different bank accounts had been duly explained by it.

The Hon’ble High Court opined that though the writ Court should not pass such interim orders which may amount to passing of the final order but in a situation like this where serious prejudice may be caused to the petitioner-society exemption from pre-deposit should have been granted by the Income Tax Officer keeping in mind that the Income Tax department itself had treated this case as non-priority case and fixed a date for a final decision, which was about 6 months away.

Accordingly, the division bench of the Hon’ble High Court set aside and the operation of the Notice for Penalty was stayed.

Download Full Judgment Click Here >>

• GST Form SRM-I enabled for manufacturers of Pan Masala and Tobacco
• Prosecution for late deposit of TDS stayed in view of Supreme Court judgment
• If no physical discrepancy found, mere increase in stock not undisclosed stock u/s 69B
• CIT(A) is required to communicate the notice to email id mentioned in Appeal Form 35
• Opportunity of personal hearing u/s 144B(6)(viii) must even if assessee had not requested