2025 (11) TMI 99 - HC - Income Tax

Stay application dismissed; 20% pre-deposit of disputed tax upheld under CBDT OMs (29.02.2016) as amended

The HC dismissed the stay application and upheld the authority's order requiring the assessee to deposit 20% of the disputed demand pending appeal, ... Rejection of stay application - directed the assessee to deposit 20% of entire demand in light of CBDT circular vide O.M. No. 404/72/93-ITCC dated 29.02.2016 and its amendment dated 31.07.2017 - HELD THAT:- A conjoint reading of OMs clearly brings out that where the demand was contested before CIT (A), as in the present case, normally grant of stay of demand till disposal of first appeal shall be subject to payment of 20% of the disputed demand. It is only in the event that payment of a lump-sum amount higher than 20% is warranted, that the reasons are required to be given. Reference in this regard may be had to the following observations made in Skyline Engineering Contracts [2021 (8) TMI 1051 - DELHI HIGH COURT] while dealing with the question of deposit of 20% in terms of OM dated 29.02.2016, as amended by OM dated 25.08.2017 finds that in the present matters no order has been passed by the Assessing Officer under Section 245 of the Act for adjustments of refunds. Moreover, there is no order by the Assessing Officer giving any special/particular reason as to why any amount in excess of 20% of the outstanding demand should be recovered from the petitioner-assessee at this stage in accordance with paragraph 4(B) of the office memorandum dated 29th February, 2016. Consequently, this Court is of the view that the respondents are entitled to seek pre-deposit of only 20% of the disputed demand during the pendency of the appeals in accordance with paragraph 4(A) of the office memorandum dated 29th February, 2016, as amended by the office memorandum dated 25th August, 2017. Besides relying upon CBDT circulars viz. OM dated 29.02.2016 and OM dated 25.08.2017, the respondent also took into consideration the financial condition of the assessee, as was borne out from the returns of Assessment Years 2011-12 to 2016-17, to record that the financial condition of assessee is sound and payment of 20% of the entire demand will not cause any financial hardship to the assessee. Respondent also stated that the assessee has not given any evidence regarding his weak financial position warranting direction to pay less than 20% demand. Thus, this Court finds that the decision taken by the respondent vide its order dated 05.04.2019 is not bereft of reasons, albeit, such reasons are brief and not elaborate. The order does reflect due application of mind on the part of respondent. In the facts and circumstances of the present case, this Court does not find that there is any wilful disobedience of the order dated 05.04.2019, or that the order has been passed by the respondent with evil intent or with a bad motive or purpose, especially when the order has been passed in the light of CBDT circular, i.e., OM dated 29.02.2016, as amended by OM dated 25.08.2017. ISSUES PRESENTED AND CONSIDERED 1. Whether a judicial officer (tax adjudicator) committed civil contempt by passing a fresh order reiterating an earlier order set aside by the Court without furnishing reasons as directed. 2. Whether an order insisting on pre-deposit of 20% of disputed tax demand as a condition for stay of recovery, justified by departmental Office Memoranda and by reference to the assessee's financial returns, constitutes wilful disobedience of the Court's direction requiring reasons for imposing conditions different from 20%. 3. The legal standard and scope for establishing civil contempt: the meaning of 'wilful disobedience' and application when an inferior forum acts pursuant to departmental instructions or bona fide legal view. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Whether the fresh order was contemptuous for reiterating an order set aside without furnishing reasons Legal framework: The Contempt of Courts Act defines civil contempt as willful disobedience of a court order. The statutory ingredients require (i) existence of a court order; (ii) disobedience of that order; and (iii) such disobedience to be wilful. Precedent treatment: Courts have held that mere error of judgment or exercise of jurisdictional power without improper motive does not constitute contempt; only deliberate actions with bad motive or consciously wilful disobedience attract contempt. Cases emphasize that accidental or honest misapprehension of law does not suffice for penal consequences. Interpretation and reasoning: The Court examined whether the fresh order merely reiterated the earlier set-aside order and whether it complied with the Division Bench's direction to pass a fresh order 'in accordance with law' and having regard to facts and circumstances. The Court identified that the fresh order articulated three reasons: (i) reliance on departmental OMs prescribing normally a 20% pre-deposit for stay of demand; (ii) assessment of the assessee's financial condition from returns indicating soundness; and (iii) absence of evidence from assessee of financial hardship. The Court found these to be reasons, albeit brief, demonstrating application of mind rather than a mere verbatim reiteration intended to flout the earlier direction. Ratio vs. Obiter: Ratio - A subsequent order that on its face provides reasons grounded in legal directions and factual assessment cannot be treated as contempt merely because the earlier order was set aside; the presence of reasons negates prima facie wilful disobedience. Obiter - Observations on sufficiency of the length or elaboration of reasons were persuasive but not elevated to an absolute standard. Conclusions: The fresh order contained reasons and reflected due application of mind; therefore it did not amount to contempt for reiteration. The Court held no wilful disobedience in this respect. Issue 2 - Validity of relying on departmental OMs prescribing 20% pre-deposit and on assessee's financial returns when deciding stay application Legal framework: Administrative Office Memoranda of the Central Board prescribe the standard rate for pre-deposit where demand is contested before appellate authority (initially 15%, subsequently 20%), with provision that higher or lower pre-deposit may be ordered with reasons where circumstances so warrant. Precedent treatment: Division Bench precedent of the same Court confirms that the assessing authority is bound to follow its own stated standards and that in general only 20% pre-deposit may be required unless para (B) circumstances warrant a different figure and reasons are recorded. That decision was relied on and treated as authority for the interpretive effect of the OMs. Interpretation and reasoning: The Court construed the OMs conjunctively to mean that normally a 20% pre-deposit is sufficient and that any departure requires articulation of reasons falling within specified categories (e.g., prior appellate confirmations, codified favourable or adverse precedent, credible search evidence). The respondent's reliance on the OMs to require 20% was therefore lawful. The respondent further relied on factual material (income-tax returns for prior years) to conclude the assessee's financial capacity, and on absence of produced evidence of hardship. The Court found this triad of grounds to be permissible bases for the order. Ratio vs. Obiter: Ratio - Reliance on departmental OMs prescribing 20% plus recourse to available financial records and absence of contrary evidence is a legitimate basis for conditioning a stay; such reliance, with recorded reasons, negates the inference of wilful disobedience. Obiter - The Court's commentary that reasons need not be elaborate but must show application of mind is persuasive guidance rather than a rigid test. Conclusions: The respondent lawfully relied on the OMs and financial returns; the order imposing 20% pre-deposit was within permissible exercise of discretion and did not constitute contempt so long as reasons were recorded (even briefly). Issue 3 - Whether the conduct amounted to 'wilful disobedience' under the Contempt Act where an administrative officer acts under departmental instructions or through bona fide legal judgment Legal framework: 'Wilful disobedience' implies voluntary and intentional conduct with specific intent to disobey the court or with evil/bad motive. Jurisprudence requires demonstration of conscious contumacy or corrupt/improper motive for penal consequences; mere error, excess of jurisdiction, or misapprehension in good faith is insufficient. Precedent treatment: Supreme Court authority establishes that judicial error or excess of jurisdiction alone does not attract contempt; punishment requires proof of willful error proceeding from improper or corrupt motives. Other decisions reiterate that absence of wilful disobedience - where there is a reasonable or rational interpretation of an order or honest mistake - precludes civil contempt liability. Interpretation and reasoning: Applying these principles, the Court assessed whether the respondent acted with bad motive. The respondent filed an affidavit explaining the basis for the order, tendered an unconditional apology if any displeasure was caused, and emphasized reliance on OMs and available financial records. The Court found no evidence of malice, deliberate contumacy, or improper motive; the approach appeared to be an exercise of discretion within departmental framework rather than intentional defiance. Ratio vs. Obiter: Ratio - The absence of mala fide intent or conscious refusal to comply, coupled with a reasoned order based on departmental guidelines and facts, defeats a charge of civil contempt. Obiter - The Court's reliance on apology and continuing attendance before the Court bears on mitigation and conduct but does not alter the primary legal test. Conclusions: Conduct did not satisfy the statutory requirement of wilful disobedience; therefore contempt proceedings were not maintainable and were dropped. Cross-references and Interaction of Issues The issues are interlinked: determination of contempt required (a) examination of whether the later order differed in substance from the order set aside and (b) whether the reasons offered for the later order negated any inference of wilful disobedience. The Court's analysis of the departmental OMs (Issue 2) fed directly into the assessment of wilfulness (Issue 3), and both informed the ultimate finding on whether the fresh order constituted contempt (Issue 1). Overall Conclusion The Court concluded that the fresh order, though brief, recorded reasons based on applicable Office Memoranda and factual assessment of financial records, and there was no evidence of deliberate or malicious disobedience of the earlier direction. Consequently, the elements of civil contempt were not established and contempt proceedings were dropped.