Court rules against pre-deposit requirement in stay application, emphasizing assessment on merits.

The court ruled in favor of the petitioner, holding that the pre-deposit requirement of 20% for considering a stay application was not legally justified. The court emphasized that the assessing officer must assess the stay application on its merits first, following guidelines set by the Bombay High Court. The court also rejected the argument of an alternative remedy, stating that no stay had been granted, thus no review provision applied. It reiterated the binding nature of CBDT circulars and directed a reconsideration of the stay application without the pre-deposit condition, with a reasoned decision to be provided within two weeks.

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Issues Involved:

1. Legality of the pre-condition of 20% deposit for stay of demand.
2. Consideration of the stay application on merits by the assessing officer.
3. Availability of alternative remedy for the petitioner.
4. Binding nature and interpretation of CBDT circulars.

Detailed Analysis:

1. Legality of the Pre-condition of 20% Deposit for Stay of Demand:

The petitioner challenged the requirement imposed by the assessing officer to deposit 20% of the disputed demand as a pre-condition for considering the stay application. The petitioner argued that the circular issued by the Central Board of Direct Taxes (CBDT) under Section 119(1)(a) of the Income Tax Act, 1961 has the force of law, but the assessing officer must consider the stay application on merits first. The court agreed with this contention, stating that the pre-deposit of 20% cannot be a condition precedent for hearing the stay application. The court emphasized that the condition of pre-deposit is neither contemplated by the memorandum nor has legislative sanction mandating such deposit for the hearing of an application for stay.

2. Consideration of the Stay Application on Merits by the Assessing Officer:

The court noted that the assessing officer failed to consider the stay application on its merits and instead imposed the pre-condition of a 20% deposit. The court referred to the guidelines laid down by the Bombay High Court in KEC International Ltd. v. B.R. Balakrishnan and Others, which require the authority to set out the case of the assessee, consider financial difficulties, and provide brief reasons for the decision. The court found that the assessing officer did not follow these guidelines and merely insisted on the 20% deposit, which was not the correct approach.

3. Availability of Alternative Remedy for the Petitioner:

The respondents argued that the petitioner had an alternative remedy to approach the Principal Commissioner of Income Tax for a review of the decision of the assessing officer. However, the court overruled this plea, stating that the provision for review is available only when a stay has been granted subject to payment of 15% of the disputed demand. In this case, no stay was granted, and hence, no alternative remedy was available to the petitioner.

4. Binding Nature and Interpretation of CBDT Circulars:

The court reiterated that CBDT circulars have the force of law and are binding on income tax authorities. The court cited the Supreme Court decisions in UCO Bank, Calcutta v. Commissioner of Income Tax and Catholic Syrian Bank Limited v. Commissioner of Income Tax, which affirmed that CBDT can issue circulars to tone down the rigour of the law and ensure fair enforcement. The court emphasized that these circulars cannot be enforced adversely against the assessee and must be considered while deciding applications for stay.

Conclusion:

The court set aside the impugned orders dated 7-3-2018, which required the petitioner to deposit 20% of the disputed demand as a pre-condition for considering the stay application. The matter was remitted to the competent authority to reconsider the stay application on merits, following the guidelines laid down by the Bombay High Court. The court directed the authority to pass a reasoned order within two weeks after hearing the parties. The writ petitions were allowed to this extent, with no costs awarded to either party.

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