The writ petition was filed before the High Court of Delhi challenging the order passed by the Assessing Officer rejecting the petitioner’s application for stay of demand during the pendency of the appeal before the Commissioner of Income Tax (Appeals).

The petitioner had filed its return of income for the relevant assessment year declaring losses, and the case was selected for scrutiny. An assessment order was passed creating a tax demand, against which an appeal was preferred before the CIT(A). Pending disposal of the appeal, the petitioner filed an application under Section 220(6) of the Income-tax Act, 1961, seeking stay of recovery of the demand.

The Assessing Officer rejected the stay application through a non-speaking order, solely on the ground that the petitioner had not deposited 20% of the outstanding demand, placing reliance on CBDT Office Memorandums dated 29.02.2016 and 31.07.2017. The order did not examine the prima facie merits of the case, balance of convenience, or the issue of undue hardship.

Before the High Court, it was contended that Section 220(6) vests discretionary powers in the Assessing Officer to treat the assessee as not being in default during the pendency of the appeal, and that the CBDT Office Memorandums do not mandate a fixed pre-deposit of 20% as a condition precedent for grant of stay.

The Court noted that the legal position on the subject is well settled by earlier judgments of the Delhi High Court in National Association of Software and Services Companies (NASSCOM) v. DCIT and Centre for Policy Research v. DCIT, as well as by the Supreme Court in Principal Commissioner of Income Tax v. LG Electronics India Pvt. Ltd. These decisions clearly hold that the Office Memorandums are only administrative guidelines and cannot fetter the quasi-judicial discretion conferred under Section 220(6).

The Court observed that the Assessing Officer is required to independently apply mind to relevant considerations such as prima facie case, balance of convenience, likelihood of success in appeal, and undue hardship, and cannot mechanically insist upon a 20% deposit in every case.

In the present case, the impugned order was found to be non-reasoned and arbitrary, having been passed without considering the settled legal principles governing grant of stay of demand. The High Court therefore set aside the impugned order and remitted the matter back to the Assessing Officer for fresh consideration of the stay application in accordance with law.

Accordingly, the writ petition was allowed and disposed of with directions to the Assessing Officer to decide the stay application afresh, bearing in mind the binding judicial precedents.

LINK TO DOWNOAD THE ORDER
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Key Legal Principle Reaffirmed

The requirement of 20% deposit under CBDT Office Memorandums is not mandatory, and stay of demand under Section 220(6) must be decided on judicial discretion after considering prima facie merits and hardship.

Gist of Cases Relied Upon (as referred by the Delhi High Court)

National Association of Software and Services Companies (NASSCOM) v. DCIT (Exemption), Delhi (2024)-The Court held that CBDT Office Memorandums dated 29.02.2016 and 31.07.2017 do not mandate a fixed pre-deposit of 15% or 20% for grant of stay under Section 220(6). The Assessing Officer must exercise independent quasi-judicial discretion, considering prima facie merits, hardship, and balance of convenience. Mechanical insistence on 20% deposit is illegal.

Centre for Policy Research v. DCIT (2025) 475 ITR 96 (Delhi)-It was ruled that rejection of a stay application solely on the ground of non-payment of 20% of disputed demand is arbitrary. The AO must pass a reasoned order after examining prima facie case and undue hardship. Non-speaking orders violate principles of fairness.

Principal Commissioner of Income Tax v. LG Electronics India Pvt. Ltd. (2018) 18 SCC 447 (Supreme Court)-The Supreme Court clarified that CBDT circulars are not binding fetters on quasi-judicial authorities. Authorities are free to grant stay on deposit of lesser than 20%, depending on facts of each case.

Avantha Realty Ltd. v. Principal CIT (Delhi HC, 2024)-The Delhi High Court reiterated that the 20% deposit mentioned in the CBDT OM is only a standard guideline, not an inflexible rule. The AO must consider case-specific factors before directing any pre-deposit.

Dabur India Ltd. v. CIT (TDS) (Delhi HC)-The Court held that payment of 20% of disputed tax demand is not a universal pre-condition for stay. The condition can be relaxed where the assessee demonstrates a strong prima facie case or undue hardship.

Indian National Congress v. DCIT (Delhi HC)-It was emphasized that the quantum of deposit under Section 220(6) depends on facts such as prima facie merits, financial hardship, and likelihood of success. The OM only provides guidance, not enforceable mandates.

Benara Valves Ltd. v. CCE (2006) (Supreme Court)-The Supreme Court laid down general principles for grant of stay: discretion must be exercised judicially; prima facie case alone is not sufficient; undue hardship and safeguarding revenue interests must both be considered.

Core Legal Principle Emerging- Across all cases, courts consistently hold that automatic or mechanical insistence on a 20% pre-deposit is unlawful. Stay of demand under Section 220(6) requires a reasoned, discretionary, and fact-based decision, balancing the assessee’s rights with protection of revenue.