2025 (2) TMI 657 - HC - Income Tax

Petitioner's challenge dismissed; 20% tax deposit for interim relief upheld due to insufficient financial hardship evidence.

The HC dismissed the Petitioner's challenge to orders requiring a 20% deposit of the demanded tax for interim relief, rejecting the request for an ... Stay of demand - Petitioner challenged orders granting interim reliefs staying the recovery of 80% of the demanded tax amount, subject to the deposit of 20% of the tax amount - HELD THAT:- We find that more than adequate opportunity was granted to the Petitioner to submit genuine proof of financial hardships. However, no such evidence was adduced by the Petitioner. PCIT has observed that the Petitioner is a very reputed big builder, and various projects are currently being done. Learned counsel for the Petitioner, whilst not denying this fact, did submit that loans and advances have been obtained from multiple parties and there are certain confirmations placed on record regarding the unexplained receipts. This is, with respect, neither here nor there. Learned counsel for the Petitioner submitted that financial hardships were only one of the grounds in support of the plea for an unconditional stay. He submitted that the Petitioner relied upon the decisions of this Court, which substantially enhanced the chances of success in the appeal. If the Petitioner is a very reputed big builder undertaking various projects, we find it difficult to believe that the Petitioner is unable to even pay 20% of the tax amount amounting to approximately Rs.3.2 crores to secure a stay on the recovery of the balance amount. The Petitioner has also not been candid with the authorities. Despite more than adequate opportunities, full details regarding the Petitioner’s financial health were not disclosed. Based on some alleged contradictions between the orders made by the AO and PCIT, no case is made out for the grant of an unconditional stay. Petitioner does not wish to pay any amount and secure an unconditional stay. There is no response to our query about how much amount the Petitioner was willing to deposit. Considering the merits of the grounds raised and the decisions relied upon by the Petitioner, at least prima facie, we cannot subscribe to the view that the Petitioner has some cast iron case entitling it to an unconditional stay. On perusing the reasoning of the assessment order, good and adequate reasons have been given for insisting upon the Petitioner paying at least 20% demanded tax amount. There is no perversity in the reasoning, which has ultimately been confirmed by the PCIT. In this petition, we do not exercise any appellate jurisdiction. Going by the parameters of the judicial review, we are satisfied that no case is made out warranting interference. ISSUES PRESENTED AND CONSIDERED 1. Whether, in the facts of the case, an unconditional stay on recovery of assessed tax should be granted pending appeal, as opposed to the impugned orders requiring a deposit of 20% of the demanded amount. 2. Whether Circulars of the tax administration that prescribe or recommend a 20% deposit to obtain interim relief can be treated as elevating that practice to a statutory mandatory requirement. 3. Whether the assessing authority and the appellate revenue authority adequately considered and evaluated the claim of genuine financial hardship advanced as a ground for dispensing with the deposit condition. 4. What is the correct standard and scope of judicial review when a High Court is asked to interfere with administrative orders granting conditional interim relief in tax recovery proceedings (i.e., limits on exercising appellate jurisdiction and review for perversity or illegality). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Grant of unconditional stay versus 20% deposit condition Legal framework: Revenue authorities have discretion to grant interim relief from recovery of tax subject to conditions (including deposit). The exercise is governed by principles of reasonableness, fairness and the relevant guidelines/circulars issued by the tax administration. Precedent Treatment: The petitioner relied on prior decisions of the High Court that, according to counsel, supported an unconditional stay in comparable high-pitched assessments. The Court found those decisions distinguishable on the facts and application to the present record. Interpretation and reasoning: The Court examined the assessment record and the reasons recorded by the Assessing Officer and the Principal Commissioner of Income Tax for imposing the 20% deposit condition. The authorities provided detailed reasoning (referenced in assessment order paragraphs 4.3-4.10) justifying insistence on a 20% deposit. The petitioner, a large builder with multiple ongoing projects, did not demonstrate inability to pay the 20% deposit nor adduce adequate evidence to substantiate claimed financial distress. Ratio vs. Obiter: Ratio - where assessing authorities record adequate reasons and the petitioner fails to prove financial incapacity or a clear likelihood of success on appeal amounting to a cast-iron case, the Court will not substitute its discretion to grant an unconditional stay for the administrative decision to impose a deposit condition. Obiter - remarks about the petitioner's litigation conduct and repeated proceedings were ancillary observations. Conclusions: The Court refused to grant an unconditional stay and held the requirement to deposit 20% of the demand was justified on the record. No interference with the conditional stay was warranted. Issue 2 - Status of CBDT Circulars prescribing 20% deposit Legal framework: Administrative circulars and guidelines inform the exercise of discretion by tax authorities but do not by themselves create statutory or quasi-legislative obligations unless integrated into law or rule-making process. Precedent Treatment: The petitioner argued that Circulars cannot be elevated to statutory status to compel a 20% deposit. The Court recognized this legal proposition in principle but assessed the impugned orders on the basis of the authorities' reasoning and the petitioner's factual showing rather than treating the Circulars as a rigid statutory bar. Interpretation and reasoning: The Court observed that the imposition of the 20% deposit in this case was not a mere perfunctory application of a circular but flowed from specific findings and reasons recorded by the AO and confirmed by the PCIT. Thus, even if Circulars are not statutory, a reasoned administrative decision applying the guideline is open to judicial review only on conventional grounds. Ratio vs. Obiter: Ratio - Circulars do not ipso facto change the legal position to create mandatory statutory requirements; however a reasoned insistence on deposit consistent with such Circulars is amenable to judicial review on standard grounds. Obiter - general comments on the non-statutory status of Circulars. Conclusions: The Court declined to treat the Circulars as dispositive of the matter; it sustained the deposit condition because adequate reasons were recorded independent of elevating the Circular to statutory force. Issue 3 - Adequacy of consideration of claimed financial hardship Legal framework: Claim of financial hardship is a recognized ground for dispensing with deposit conditions; authorities must afford opportunity and require credible documentary proof to substantiate such claims. Precedent Treatment: The parties relied on earlier authorities concerning hardship; the Court noted reliance but distinguished the present factual matrix where adequate opportunity was given but evidence was not supplied. Interpretation and reasoning: The Court reviewed the record and found that the petitioner was given more than adequate opportunity to demonstrate financial distress but failed to adduce full details of financial health or other convincing evidence. The petitioner's asserted loans, advances and confirmations for unexplained receipts were not treated as sufficient to prove inability to make the deposit. Moreover, the petitioner's status as a reputed large builder engaged in multiple projects undermined the claim of inability to deposit 20% (˜ Rs.3.2 crores). Ratio vs. Obiter: Ratio - where the administrative authority affords adequate opportunity and the claimant fails to present credible proof of financial hardship, the Court will not overturn a deposit condition. Obiter - comments on lack of candour and litigation conduct. Conclusions: The Court found no merit in the contention that financial hardship justified an unconditional stay; the authorities' consideration was adequate and their conclusion sustained. Issue 4 - Standard and scope of judicial review of administrative stay decisions; limits on exercising appellate jurisdiction Legal framework: High Courts review administrative action under writ jurisdiction on grounds such as illegality, perversity, mala fides, absence of jurisdiction, or violation of principles of natural justice; they do not ordinarily re-weigh evidence or exercise appellate fact-finding powers unless the decision is without any basis or perverse. Precedent Treatment: The Court reiterated the conventional separation between appellate re-hearing and judicial review, indicating that interference is available only where parameters of review are met. Interpretation and reasoning: The Court expressly declined to exercise appellate jurisdiction and confined itself to judicial review. It found the AO and PCIT had provided cogent reasons; there was no perversity, illegality or denial of opportunity. The Court further noted that prima facie merits relied upon by the petitioner did not establish a cast-iron case justifying departure from established deposit practice. Ratio vs. Obiter: Ratio - judicial review of conditional interim orders will not permit substitution of administrative discretion absent perversity or illegality; mere contestation of reasons or divergent view on merits does not suffice. Obiter - general observations on avoiding prejudicing merits by not referring to several detected pitfalls. Conclusions: The Court applied the standard of review restrictively and refused to interfere with the administrative decision; dismissal of the petition followed on judicial review grounds rather than a re-appraisal on merits. Interrelationship and collective conclusion All issues converge to the principal outcome: the administrative decision to grant interim relief subject to deposit of 20% was supported by adequate reasoning, the petitioner failed to substantiate claimed financial hardship, Circulars were not treated as overriding legal compulsion but their application was upheld on the facts, and the High Court, confined to judicial review, found no basis to disturb the conditional stay. The petition was dismissed accordingly.