AO must grant stay of demand when disputed before CIT(A) on depositing 20% per Instruction 1914

Delhi HC held that the AO must grant stay of demand when outstanding amount is disputed before CIT(A) through appeal. Per Instruction No. 1914 dated 21-3-1996, stay should be granted on deposit of certain percentage of disputed demand. The percentage requirement was increased from 15% to 20% via OM dated 31.07.2017. Since revenue already held refunds exceeding 20% of the disputed amount, AO was directed to stay the demand while retaining 20%, with assessee entitled to refund of remaining amount.

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Issues:
The issues involved in the judgment are the early hearing of a matter concerning the release of a refund under Section 143(1) of the Income-tax Act, 1961, and the adjustment of a demand raised in an assessment order for Assessment Year (AY) 2017-18.

Early Hearing of Refund Matter:
The petitioner sought early hearing for the release of a refund amounting to Rs. 62,14,31,834 under Section 143(1) of the Income-tax Act, 1961. The petitioner's grievance was the failure of the respondents to release the refund along with applicable interest. The respondents had not filed a counter-affidavit in the matter, and the matter was listed for further hearing.

Adjustment of Demand in Assessment Order:
The assessment order for AY 2017-18 raised a demand of Rs. 36,69,10,379, which was adjusted against pre-paid taxes deposited by the petitioner. The remaining amount after adjustment was remitted to the petitioner, which included interest. The petitioner contended that the entire demand could not have been adjusted based on Office Memorandums issued by the Central Board of Direct Taxes (CBDT). The petitioner also challenged various additions made by the Assessing Officer, citing relevant judgments to support their contentions.

Legal Analysis and Directions:
The Court noted that the AO should have granted a stay in the matter as the demand was disputed before the CIT(A), in accordance with the OMs issued by the CBDT. The OMs prescribed that a certain percentage of the disputed demand should be deposited for a grant of stay, which was increased from 15% to 20% in a revised guideline. Since the refunds due to the petitioner exceeded 20% of the disputed amount, the AO was directed to stay the demand created by the assessment order and release the excess amount to the petitioner. Consequently, the writ petition was disposed of with specific directions for the AO to comply with.

Conclusion:
The judgment addressed the early hearing of a refund matter and the adjustment of a demand in an assessment order for AY 2017-18. It emphasized the legal obligations of the Assessing Officer in granting a stay on demand when disputed before the CIT(A), based on the guidelines set forth by the CBDT. The Court provided clear directions for the AO to stay the demand and release the excess amount to the petitioner, in line with the legal provisions and judgments cited during the proceedings.

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