Interim stay on income tax demand where frozen bank accounts prevented payment of statutory dues and balance of convenience favoured protection

Interim protection was granted against the income tax demand because the petitioners said their bank accounts were frozen by the Enforcement Directorate, preventing payment of statutory dues. The Court found a prima facie case and held that the balance of convenience favoured the petitioners, particularly since the authorities gave no explanation for the effect of the Delhi High Court order permitting payment of statutory dues despite frozen accounts. The demand for the assessment years 2019-20 and 2020-21 was stayed, subject to any modification, clarification or vacation of that Delhi High Court order, and the matter was directed to continue with counter affidavit and rejoinder.

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Issues: Whether interim stay should be granted against the income tax demand for the assessment years 2019-20 and 2020-21 in view of the alleged inability to access frozen bank accounts for payment of statutory dues.

Analysis: The petitioners were unable to make payment of tax dues because the bank accounts were stated to be frozen by the Enforcement Directorate, while the tax authorities had proceeded to impose liability, penalty, interest and costs. The Court noted the absence of any explanation from the authorities regarding the Delhi High Court order permitting payment of statutory dues notwithstanding freezing of accounts. On that basis, the Court recorded a prima facie case and found that the balance of convenience lay with the petitioners for interim protection.

Outcome: Interim stay of the income tax demand was granted for the assessment years 2019-20 and 2020-21, subject to any modification, clarification or vacating of the order passed by the Delhi High Court, and the matter was directed to proceed further with counter affidavit and rejoinder.

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