Delhi HC quashes stay orders requiring 40% and 20% tax deposits for failing to examine merits and hardship

Delhi HC allowed writ petition challenging stay orders requiring deposit of 40% and 20% of outstanding tax demand respectively. Court found both authorities failed to examine prima facie merits, likelihood of success, and undue hardship aspects while considering stay applications. The impugned orders were quashed as wholly unsustainable. Matter remitted to AO to examine stay applications afresh following legal position established in NASSCOM precedent.

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Issues Involved:
1. Validity of orders dated 22 November 2021 and 27 February 2024 regarding stay applications for outstanding tax demands.
2. Legality of requiring a 20% deposit of the outstanding demand as a pre-condition for considering stay applications.
3. Evaluation of prima facie merits, likelihood of success, and undue hardship in stay applications.

Summary:

1. Validity of Orders Dated 22 November 2021 and 27 February 2024:
The petitioner challenged the orders dated 22 November 2021 and 27 February 2024, which disposed of stay applications for outstanding tax demands for AYs 2010-11 to 2020-21. The second respondent rejected the stay application on 22 November 2021 due to the petitioner not depositing 20% of the outstanding demand, based on CBDT Office Memorandums (OMs) dated 29 February 2016 and 31 July 2017. The first respondent, on 27 February 2024, required the petitioner to deposit 40% of the outstanding demand within 15 days as a condition for staying the remaining balance.

2. Legality of Requiring a 20% Deposit:
The court noted that the impugned orders were based on the erroneous assumption that stay applications could not be entertained without a 20% deposit. The court emphasized that the CBDT's OMs do not mandate a 20% deposit as an inflexible condition. The OMs provide guidance and allow discretion based on the facts of each case. The court cited precedents, including the Supreme Court's decision in Principal Commissioner of Income Tax & Ors. vs LG Electronics India Pvt. Ltd., which clarified that the administrative circular should not fetter the Commissioner's discretion.

3. Evaluation of Prima Facie Merits, Likelihood of Success, and Undue Hardship:
The court found that both respondents failed to consider the prima facie merits, likelihood of success, and undue hardship in the petitioner's case. The court referred to its previous judgment in NASSCOM, which outlined that stay applications must be evaluated based on these factors. The court also highlighted that the first respondent's decision to require a 40% deposit was more onerous than the second respondent's 20% requirement, without proper consideration of the legal principles involved.

Conclusion:
The court quashed the impugned orders dated 22 November 2021 and 27 February 2024 and remitted the matter to the AO for fresh consideration of the stay applications, in light of the legal principles enunciated in NASSCOM. All rights and contentions of the parties were kept open.

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