Discretionary Power vested on AO for Granting Stay under Income Tax Act shall be Exercised within Four Corners of Law: Allahabad HC [Read Order]

The Allahabad High Court, in a recent ruling, has held that the discretionary power vested on the Assessing Officer to grant stay of demand is not absolute and the same shall be exercised within the four corners of law.

The assessee, M/s ALM Industries Ltd, approached the High Court challenging an order of the Deputy Commissioner of Income Tax wherein the officer directed for deposit of 20% of the disputed amount of tax and rejected the stay application while the Principal Commissioner of Income Tax proceeded to consider the audit report and balance sheet partially and considering the assets while ignoring the liability part had rejected the stay application holding the financial position of the petitioner to be strong enough and directed for depositing 20% of the disputed amount of tax.

The department contended that nowhere in the stay application it has been pressed by the Assessee that its financial position was critical and was not in the position to deposit 20% of the outstanding demand, as directed by the authority.

Justice Rohit Ranjan Agarwal observed that “from the reading of the aforesaid provision it is clear that once an appeal has been filed under Section 246 or 246A of Act of 1961, it is the discretion of the ‘Assessing Officer’ and subject to the condition as he may think fit to impose in the circumstances of the case, treat the Assessee as not being in default in respect of the amount in dispute in the appeal.”

Regarding the petitioners’ contention that the presentation of the appeal within statutory period should be treated as “Assessee as not being in default”, the Court observed that the same cannot be accepted because it is clarified to the extent that discretion has been given to the Assessing Officer who has to impose a condition in each of such cases treating the Assessee as not being in default in respect of the amount in dispute in the appeal.

“Thus, it is clear that mere pendency of an appeal will not give any benefit to an Assessee, but only upon the satisfaction having been recorded by the Assessing Officer and the condition being imposed by him in each of such cases that an Assessee shall be treated to be not in default in respect of the outstanding demand of tax, which is matter of dispute in appeal,” the Court said.

Concluding the order, the Court observed that “However, the word ‘discretion’, which occurs in the aforesaid provision of law, does not give a blanket power to the Assessing Officer. He has to exercise his discretion within the four corners of law and while passing an order imposing a condition, he has to justify his action. This Court finds that while considering the stay application, neither the Deputy Commissioner of Income Tax nor Principal Commissioner of Income Tax had considered three basic principles i.e. prima facie case, balance of convenience and irreparable loss, as held by Delhi High Court in Tata Teleservices Limited.”

To Read the full text of the Order CLICK HERE

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