The writ petition was filed before the High Court of Delhi challenging the order passed by the Assessing Officer rejecting the petitioner’s application for stay of demand during the pendency of the appeal before the Commissioner of Income Tax (Appeals).

The petitioner had filed its return of income for the relevant assessment year declaring losses, and the case was selected for scrutiny. An assessment order was passed creating a tax demand, against which an appeal was preferred before the CIT(A). Pending disposal of the appeal, the petitioner filed an application under Section 220(6) of the Income-tax Act, 1961, seeking stay of recovery of the demand.

The Assessing Officer rejected the stay application through a non-speaking order, solely on the ground that the petitioner had not deposited 20% of the outstanding demand, placing reliance on CBDT Office Memorandums dated 29.02.2016 and 31.07.2017. The order did not examine the prima facie merits of the case, balance of convenience, or the issue of undue hardship.

Before the High Court, it was contended that Section 220(6) vests discretionary powers in the Assessing Officer to treat the assessee as not being in default during the pendency of the appeal, and that the CBDT Office Memorandums do not mandate a fixed pre-deposit of 20% as a condition precedent for grant of stay.

The Court noted that the legal position on the subject is well settled by earlier judgments of the Delhi High Court in National Association of Software and Services Companies (NASSCOM) v. DCIT and Centre for Policy Research v. DCIT, as well as by the Supreme Court in Principal Commissioner of Income Tax v. LG Electronics India Pvt. Ltd. These decisions clearly hold that the Office Memorandums are only administrative guidelines and cannot fetter the quasi-judicial discretion conferred under Section 220(6).

The Court observed that the Assessing Officer is required to independently apply mind to relevant considerations such as prima facie case, balance of convenience, likelihood of success in appeal, and undue hardship, and cannot mechanically insist upon a 20% deposit in every case.

In the present case, the impugned order was found to be non-reasoned and arbitrary, having been passed without considering the settled legal principles governing grant of stay of demand. The High Court therefore set aside the impugned order and remitted the matter back to the Assessing Officer for fresh consideration of the stay application in accordance with law.

Accordingly, the writ petition was allowed and disposed of with directions to the Assessing Officer to decide the stay application afresh, bearing in mind the binding judicial precedents.

LINK TO DOWNOAD THE ORDER
https://mytaxexpert.co.in/uploads/1767323793_CLEARMEDIHEALTHCAREPRIVATELIMITEDversusDEPUTYCOMMISSIONEROFINCOMETAXCIRCLE42DELHIORS.pdf 

Key Legal Principle Reaffirmed

The requirement of 20% deposit under CBDT Office Memorandums is not mandatory, and stay of demand under Section 220(6) must be decided on judicial discretion after considering prima facie merits and hardship.