Stay of disputed tax demand justified where prima facie case and TDS coverage supported deferred recovery pending appeal.

Recovery of the disputed tax demand was deferred pending appeal because the assessee showed a prima facie case on attribution of income to an alleged permanent establishment and on the extent of taxable income. The Tribunal also noted that the disputed demand was disproportionately higher than the returned income, and that tax deducted at source exceeded the likely liability on the assessee's case, including only a limited mark-up being taxable. Applying the CBDT stay instruction and settled stay principles, the Tribunal treated these factors as sufficient to justify stay of recovery until disposal of the appeal.

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Issues: Whether the demand raised against the assessee ought to be stayed pending disposal of the appeal, having regard to the assessed income vis-a -vis the returned income, the assessee's prima facie case, and the likely tax liability compared with tax deducted at source.

Analysis: The assessee's returned income was enhanced substantially in assessment, and the disputed demand was far higher than the returned tax position. The Tribunal noted that the assessee had a prima facie case on the question of attribution of income to an alleged permanent establishment and on the extent of taxable income, including the assessee's contention that only a limited mark-up could be brought to tax. It also took note that the tax deducted at source exceeded the likely tax liability if the assessee's stand were accepted to the extent of the recognised mark-up. In these circumstances, and applying the CBDT instruction governing stay of disputed demand together with the settled principles relied upon, the Tribunal found that recovery ought to be deferred pending adjudication of the appeal.

Conclusion: The demand was stayed in favour of the assessee until disposal of the appeal.

Ratio Decidendi: Where the disputed demand is disproportionately higher than the returned income and the assessee demonstrates a prima facie case, stay of recovery is justified pending appeal, particularly when the tax already deducted at source is sufficient to cover the likely liability on the assessee's case.

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