High Court Grants Stay on Tax Demand Pending Appeal, Sets Procedure for Petitioner Protection

The High Court granted the petitioner liberty to file a stay petition with the second respondent to suspend the tax demand while their appeal was pending. The Court instructed the second respondent to hold the notice in abeyance for two weeks, allowing the petitioner to submit an application for stay. The second respondent was required to provide a personal hearing and issue a reasoned order on the stay petition. The petitioner was directed to establish a prima facie case for staying the tax demand, with the notice being kept on hold until a decision was reached. The writ petition was disposed of without costs, providing a procedural framework for the petitioner's protection during the appeal process.

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Issues:
Challenge to notice under Section 226(3) of the Income Tax Act, 1961 for arrears of income tax - Petitioner's appeal pending before first respondent - Request for stay petition to second respondent.

Analysis:
The petitioner approached the High Court seeking to quash a notice issued under Section 226(3) of the Income Tax Act, 1961, demanding payment of arrears of income tax amounting to Rs. 2,50,380. The petitioner contended that an appeal against the assessment order for the year 2009-2010 was pending before the first respondent, and payment of tax during the appeal process would cause prejudice. The Court directed the respondents to verify the status of the appeal petition, which was confirmed to have been taken on file as ITA No.264 of 2016-17. It was noted that the petitioner had not filed a stay petition before the appellate authority or the second respondent.

The Court, considering the facts and the pending appeal, granted liberty to the petitioner to approach the second respondent for filing a stay petition to suspend the tax demand as mentioned in the assessment order. The petitioner expressed readiness to file the stay petition but sought interim protection of their interests. Consequently, the Court disposed of the writ petition by instructing the second respondent to hold the impugned notice in abeyance for two weeks. Within this period, the petitioner was directed to submit an application for stay of the tax demand specified in the assessment order. The second respondent was mandated to provide an opportunity for a personal hearing to the petitioner or their authorized representative and then issue a reasoned order in compliance with the law. The second respondent was tasked with evaluating whether the petitioner had established a prima facie case for staying the entire tax demand, and until a decision was made, the notice dated 30.03.2017 was to be kept on hold.

In conclusion, the writ petition was disposed of without costs, with the connected miscellaneous petition being closed. The judgment provided a structured approach for the petitioner to seek a stay on the tax demand pending the appeal process, ensuring procedural fairness and protection of the petitioner's rights during the ongoing legal proceedings.

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