Introduction
The Delhi High Court, in the case of Centre for Policy Research v. Deputy Commissioner of Income-tax,[i] addressed the power of the assessing officer (‘AO’) to direct the assessee to pre-deposit the 20% of the outstanding demand to entertain the application for stay of demand.
Facts
The assessee was directed to deposit 20% of the total outstanding demand as a prerequisite for receiving protection. Subsequently, the assessee filed an application seeking a stay of the demand while the appeal was pending.
The AO had disposed of the application, and the assessee was informed that failure to make the deposit could attract coercive measures. Consequently, a writ petition was filed before the High Court.
Held
The High Court issued a judgment in favour of the assessee, highlighting that the AO had failed to consider the merits of the case and had mechanically assumed the necessity for a 20% deposit to consider the application for a stay of demand.
The High Court placed reliance on its earlier decision in National Association of Software and Services Companies (NASSCOM) v. Dy. CIT (Exemption)[ii], which discussed office memorandums (‘OMs’) dated 29.02.2016 and 25.08.2017. These documents illustrate that while the AO has the discretionary power to require a 20% deposit, this is not an absolute mandate. The judgment emphasised that the AO must balance the rights of the state against potential undue hardship faced by the assessee. If the assessee presents a strong prima facie case that paying the penalty could lead to undue hardship or financial strain, then the requirement for a pre-deposit should be waived.
The High Court remitted the matter back to the AO for a fresh evaluation, directing that the reassessment should be guided by the legal principles established in the NASSCOM case (supra).
Our Analysis
The High Court reaffirmed the legal principles established in the NASSCOM case (supra). It has been clarified that the Assessing Officer’s authority to require a 20% pre-deposit of the penalty when considering an application for a stay of demand is discretionary and must be based on the merits of each case.
This discretion, exemplified by the OMs allowing such orders, falls under subordinate legislation. Adherence to the principle of subordinate legislation requires that discretionary powers be exercised with self-restraint on a case-by-case basis to ensure fairness and justice.
End Notes
[i] [2024] 164 taxmann.com 268 (Delhi) dated 09.05.2024.
[ii] (2024) 470 ITR 493: 2024 SCC OnLine Del 1863 dated 01.03.2024.
Authored by Rosy Gupta, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.
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