Tax officer cannot mechanically demand 20% pre-deposit for stay without examining case merits or hardship

Delhi HC held that the AO erred in mechanically requiring 20% pre-deposit for stay of demand without considering prima facie merits or undue hardship. The court found this approach misconceived and legally untenable, referencing NASSCOM precedent regarding statutory pre-deposit requirements under Section 220(6). The matter was remitted to AO for fresh consideration of the stay application, emphasizing that applications cannot be dismissed solely for non-compliance with pre-deposit requirements without proper examination of merits and hardship factors.

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Issues Involved:
1. Legality of the Assessing Officer's (AO) order requiring the petitioner to deposit 20% of the outstanding demand as a pre-condition for stay of demand.
2. Consideration of prima facie merits and undue hardship in the stay application.
3. Applicability and interpretation of CBDT's Office Memorandums (OMs) regarding pre-deposit requirements.

Summary of Judgment:

Issue 1: Legality of the Assessing Officer's Order
The writ petition impugns the AO's order dated 03 May 2024, which required the petitioner to deposit 20% of the outstanding demand as a pre-condition for stay of demand during the pendency of its statutory appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. The AO's order was based on CBDT's Instruction No 1914 dated 21.03.1996, OM dated 29.02.2016, and OM No. 404/72/93-ITCC dated 31.07.2017, which were interpreted to mandate a 20% deposit for granting stay.

Issue 2: Consideration of Prima Facie Merits and Undue Hardship
The court observed that the AO had neither considered the prima facie merits of the challenge raised by the petitioner nor addressed the issue of undue hardship. The AO mechanically proceeded on the premise that the petitioner had not made a pre-deposit of 20%, thus rejecting the stay application without proper consideration.

Issue 3: Applicability and Interpretation of CBDT's OMs
The court referred to its previous judgment in National Association of Software and Services Companies (NASSCOM) v. Deputy Commissioner of Income Tax (Exemption) Circle 2(1), New Delhi & Ors., which clarified that the OMs do not mandate a 15% or 20% deposit as a pre-condition for granting stay. The OMs provide discretion to the AO to grant stay subject to a deposit at a rate higher or lower than 20%, depending on the facts of each case. The Supreme Court in Principal Commissioner of Income Tax & Ors. vs LG Electronics India Pvt. Ltd. emphasized that the administrative circular would not operate as a fetter on the AO's quasi-judicial authority.

Court's Decision
The court found the AO's order unsustainable as it failed to consider relevant legal principles, including prima facie case, balance of convenience, and irreparable injury. The court noted that the AO's assumption that a 20% pre-deposit was mandatory was misconceived and untenable in law.

Conclusion
The court allowed the writ petition, set aside the impugned order dated 03 May 2024, and remitted the matter to the AO for fresh consideration of the stay application. The AO was directed to examine the application afresh, bearing in mind the legal principles enunciated in the NASSCOM judgment.

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