In an order rejecting stay of income tax demand there should be a recital of the merits whether it is a case for stay or not.
In a recent judgment, Hon’ble High Court has held that in the order rejecting stay of income tax demand there has to be a recital of the merits at least for considering whether it is a case for stay or not. Mere reference to CBDT Instruction not enough.
ABCAUS Case Law Citation:
5236 (2026) (10) abacus.in HC
The Petitioner assessee was retired army personnel. His assessment was completed under Section 143(3) of the Income Tax Act, 1961 (the Act) whereby inter alia an addition of approx. Rs. 4 crores was made under Section 69 of the Act.
The Petitioner challenged the substantial disputed addition by filing a statutory appeal before the Commissioner of Income Tax (Appeals), NFAC. Apart from the statutory appeal, the petitioner also filed an application for stay of the recovery of the disputed demand before the competent authority i.e. Assessing Officer.
However, the stay application came to be rejected and one of the bank account was attached. The assessee feared that this account wherein his monthly pension is credited would also be attached / freezed. Therefore, he filed a writ petitioner before the Hon’ble High Court to grant relief with regard to rejection of the stay application.
The stay application had been rejected by the Income Tax Officer on the two premises firstly that the appeal before CIT(A) was pending and there was no stay order and secondly, 20% of the disputed amount as per the Circular O.M. dated 31.07.2017 had not been paid.
The assessee submitted that the Delhi High Court set aside similar type of orders. Reliance was also placed upon the decision of the Hon’ble Apex Court wherein it was held that once an order in appeal results in serious consequences, then interim protection is to be accorded.
The Hon’ble High Court observed that the Delhi High Court observed that the instructions/office memorandum of the Central Board of Direct Taxes Instruction No.1914 dated 02.12.1993 outlined the broad principles, which the Assessing officers and other authorities had to keep in mind while considering the applications for stay of demand.
The said Instruction was subsequently amended by CBDT Office Memorandum dated 29.02.2016 [F.No.404/72/93-ITCC]. The latter instructions of 2016 directs the concerned authorities to adhere to the following principles:
(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). (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 (e.g. in a case where addition on the same issue has been confirmed by appellate authorities in earlier years or the decision of the Supreme Court or jurisdictional High Court is in favour of Revenue or addition is based on credible evidence collected in a search or survey operation, etc.) 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 (e.g. in a case where addition on the same issue has been deleted by appellate authorities in earlier years or the decision of the Supreme Court or jurisdictional High Court is in favour of the assessee, etc.), 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 balanced demand.
The figure of 15% mentioned has subsequently been increased to 20% by Office Memorandum [F.No.404/72/93-ITCC] dated 31.07.2017.
The Hon’ble High Court noted that bare look of the order impugned revealed that the same was non-speaking, unreasoned and further merely relying upon the Circular dated 31.07.2017 as well as the fact that the appeal was pending and there was no stay order, the order came to be passed against the applicant. In the opinion of the Court, something more was required. There had to be a recital of the merits at least for considering whether it was a case for stay or not in that regard.
The Hon’ble High Court observed that the AO had to necessarily apply his/her mind to the application for stay of demand and pass appropriate orders having regard to the extant directions and circulars including the memorandum of 29.02.2016. This in turn meant that AO could not have imposed a pre-condition of the kind that had been done in the impugned order.
Consequently, the impugned order was set aside and remitted back to the respondent / competent authority to pass a fresh order.
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