Chhattisgarh HC sets aside Income Tax Dept’s Order Demanding 20% Deposit Amount for Stay of Tax Demand [Read Order]

The Chhattisgarh High Court set aside the Income Tax department’s order  demanding 20 % deposit amount for stay the demand of tax under section 156 of the Income Tax Act, 1961. It was viewed that the deposit of 20% of the disputed demand has been made condition precedent for hearing the application for stay which is not contemplated either under the Act of 1961 or the CBDT guidelines dated 29-22016 modified by the office memorandum dated 31-7-2017.

Maa Danateshwari Maize Processing And Marketing Cooperative Society Limited , the petitioner filed the petition challenging the order dated 20.01.2025 passed by respondent No.3, whereby, during pendency of the Appeal, direction to deposit of 20% of the outstanding amount was made.

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The petitioner submitted  that the issue involved in this matter is no longer res integra, as the Coordinate

Bench relying upon the decision of Bombay HighCourt in the matter of KEC International Ltd. Vs. B.R. Balakrishnan

& Ors. reported in (2001) has directed for deposit of 20% of the disputed amount, by passing a speaking order, and the matter was remitted back to the competent authority to consider afresh in light of guidelines as framed by the Bombay High Court and followed by the Court.

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The Assessing Officer rejected the stay application only on the ground that the petitioner failed to pre-deposit 20% of the total demand amount. Further submitted that the demand has been raised by the Revenue on account of non-availability of pan cards of marginal maize farmers, due to which, the tax liability has wrongly been assessed in respect of the petitioner. 

The petitioner, after receiving the demand notice under Section 156 of the Income Tax Act, 1961 (“the Act, 1961”), challenged the Assessment Order by filing an Appeal under Section 246 of the Act, 1961 before respondent No.2 and during pendency of the Appeal, the petitioner simultaneously filed an application under Section 220(6) of the Act, 1961 for staying the payment of demand amount, wherein the aforesaid order has been passed. Lastly, he submits that during pendency of such Appeal, the impugned order is bad in law.

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In the matter of M/s. Aarti , it was categorically held that “the IncomeTax Officer should not act as a mere tax gatherer but as a quasi judicial authority vested with the public duty of protecting the interest of the Revenue while at the same time balancing the need to mitigate hardship to the assessee. Though the AO has made an assessment, he must objectively decide the application for stay considering that an appeal lies against his order: the matter must be considered from all its facets, balancing the interest of the assessee with the protection of the Revenue.”

A single bench of Justice Deepak Kumar Tiwari viewed that deposit of 20% of the disputed demand has been made condition precedent for hearing the application for stay which is not contemplated either under the Act of 1961 or the CBDT guidelines dated 29-22016 modified by the office memorandum dated 31-7-2017.

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It is only when the competent authority is of the opinion that the assessee has made out a case for grant of interim relief, stay can be granted subject to deposit of 20% of the disputed demand. Likewise, there is a further clause in the circular for reduction of 20% deposit if the petitioner makes out a case, it has also not been considered. In straightway, direction of deposit of 20% of the disputed demand has been made which is not the correct way of deciding the application for stay of the disputed demand.

The court set aside the impugned order and remitted the matter to the competent authority to consider it afresh in light of the guidelines as stated above and pass a reasoned order within a period of 4 weeks from the date of receipt of the order.

To Read the full text of the Order CLICK HERE

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