Facts of the Case

The petitioner, Amtek Transportation Systems Limited, challenged an order dated 08.04.2023 whereby its application for stay of a demand notice was rejected without providing cogent reasons.

An ex parte assessment order dated 27.12.2022 was passed under Sections 144 read with 144B of the Income Tax Act, resulting in a substantial tax demand of approximately ₹129.70 crores for Assessment Year 2021–22.

Subsequently, the petitioner’s bank account was attached, and a condition was imposed requiring deposit of 20% of the demand (approximately ₹25.94 crores) for grant of stay.

The petitioner contended that it lacked financial capacity and that the demand itself was prima facie unsustainable.

Issues Involved

  1. Whether the rejection of the stay application without assigning reasons is legally sustainable.
  2. Whether the authority can mechanically apply CBDT guidelines requiring 20% deposit for stay of demand.
  3. Whether financial hardship and prima facie merits of the case must be considered while deciding stay applications.

 Petitioner’s Arguments

  • The impugned order rejecting the stay application was non-speaking and lacked proper reasoning.
  • The authority mechanically relied on CBDT instructions mandating 20% deposit without considering case-specific facts.
  • The petitioner demonstrated a strong prima facie case, including:
    • Additions based on sale of machinery incorrectly treated as income.
    • Entire current liabilities added without justification.
    • Disallowance of expenses already accounted for.
  • The petitioner had severe financial distress, including negative net worth and inability to meet the deposit condition.

Respondent’s Arguments

  • The Revenue relied upon CBDT instructions requiring deposit of 20% of the outstanding demand for grant of stay.
  • It justified the conditional stay order based on established administrative guidelines.

Court’s Findings / Order

  • The High Court held that the impugned order was unsustainable as it lacked proper reasoning and failed to consider relevant factors.
  • Authorities must consider:
    • Prima facie merits of the case
    • Financial hardship
    • Balance of convenience
  • The Court reiterated that the requirement of depositing 20% of the demand is not mandatory and can be relaxed based on facts, relying on the Supreme Court decision in PCIT vs LG Electronics India Pvt. Ltd.

Directions Issued:

  • The impugned order dated 08.04.2023 was set aside.
  • The matter was remanded for fresh consideration by the PCIT.
  • A speaking order must be passed after granting personal hearing.
  • The bank account attachment was relaxed subject to remittance of available balance.
  • Appeal proceedings before NFAC to continue independently.

Important Clarification

  • CBDT guidelines prescribing 20% deposit are directory and not mandatory.
  • Authorities must pass reasoned (speaking) orders while deciding stay applications.
  • Financial hardship and merits cannot be ignored.
  • Mechanical application of guidelines is legally impermissible.

 Link to download the order - https://delhihighcourt.nic.in/app/showFileJudgment/RAS25042023CW51972023_223515.pdf

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