Income Tax Recovery Automatically stays when 20% Pre-deposit is Paid for Appeal Filing: Madras HC quashes Recovery Notice [Read Order]

In a recent ruling, the Madras High Court has held that recovery proceedings under the Income Tax Act, 1961 are automatically stayed when an assessee deposits 20% of the disputed tax amount at the time of filing an appeal.

The bench of Krishnan Ramasamy quashed the recovery notice issued by the Income Tax Department, observing that the assessee had complied with the pre-deposit requirement mandated under departmental circulars.

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The petitioner, Ranjit V Srivatsaa had filed a writ petition challenging the recovery notice dated 16.12.2024, issued by the department despite the fact that an appeal against the assessment order dated 24.12.2018 was already filed on 24.01.2019. At the time of appeal filing, the petitioner had paid 20% of the disputed tax amount, and evidence of the same was placed before the Court.

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The petitioner further contended that under prevailing norms, such a pre-deposit results in an automatic stay on recovery proceedings.

However, the income tax department had issued a recovery notice without considering the fact of payment. While the petitioner initially sought broader relief, during the hearing, counsel confined the prayer to a direction for disposal of the appeal and a stay on recovery till such disposal.

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The bench considered submissions and the fact that the mandatory 20% pre-deposit had been made, It held that the issuance of the recovery notice was unsustainable. It stated that “Normally, when an Assessee makes the payment of 20% of the disputed tax amount, there will be an automatic stay of recovery proceedings. However, in this case, without considering the payment made by the petitioner, the impugned recovery notice came to be issued by the respondent on 16.12.2024 and hence, the same is liable to be quashed.”

The High Court accordingly quashed the impugned notice and directed the Appellate Authority to dispose of the appeal within three weeks. It further ordered the tax department to defer recovery proceedings until the appeal is decided.

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