Delhi High Court: 20% Pre-Deposit Not Required For Stay Application during Pendency of First Appeal

Delhi High Court: 20% Pre-Deposit Not Required for Stay Application during Pendency of First Appeal

The Delhi High Court has ruled that the requirement of a 20% pre-deposit is not obligatory for the examination of a stay application while the first appeal is pending.

The bench of Justices Yashwant Varma and Purushaindra Kumar Kaurav has noted that the respondent department's assumption that the application for considering outstanding demands could not be entertained without a 20% pre-deposit is erroneous. This stance is entirely misconceived and legally unsustainable.

The petitioner submitted its Income Tax Return for Assessment Year 2018-19, seeking a refund of INR 6,45,65,160 due to excess taxes deducted at source during that period. While processing the return, notices under Sections 143(2) and 142(1) were issued on September 22, 2019, and January 9, 2020, respectively. Following this, an intimation under Section 143(1) informed the petitioner of a refundable amount of INR 6,42,30,413, along with interest. However, upon completing the assessment and issuing a formal order under Section 143(3) read with Section 144B, various additions were made to the disclosed income, resulting in a demand of INR 10,26,85,633.

The petitioner lodged an appeal before the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, which is currently pending. At the same time, it submitted an application purportedly under Section 154 of the Act, seeking correction of rectifiable mistakes deemed apparent on the record. Alongside the rectification plea, on May 28, 2021, the petitioner also submitted a stay application concerning the raised demand. However, the rectification application was summarily dismissed through an order.

The petitioner filed an appeal before the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, which is currently pending. At the same time, it submitted an application purportedly under Section 154 of the Act, seeking correction of rectifiable mistakes deemed apparent on the record. Alongside the rectification plea, on May 28, 2021, the petitioner also submitted a stay application concerning the raised demand. However, the rectification application was summarily dismissed through an order.

The assessee argued that the initiated action and the adjustments made are completely arbitrary and unlawful, as there is no justification for making the adjustments without considering or examining their application under Section 220(6). The essence of Section 220(6) has been invalidated by the respondents' actions, as they proceeded to make the contested adjustments without even reviewing the petitioner's application to not be classified as an "assessee in default."

The court noted that at the time the adjustments were made, the petitioner's application under Section 220(6) had not been considered or disposed of by the authorities. Therefore, the respondents' actions in adjusting the demand for the assessment year 2018-19 against available refunds without addressing the pending application were deemed arbitrary and unfair.

As a result, the court allowed the writ petition and directed the matter to be remitted to the respondents for reconsideration of the petitioner's application in line with the court's observations. The decision on the amount of refund to be released would depend on the respondents' decision following the court's directions.