Aarti Sponge & Power Ltd. Vs ACIT-2(1) (Chhattisgarh High Court)
Chhattisgarh High Court adjudicated the case of Aarti Sponge & Power Ltd. vs. ACIT-2(1), addressing the issue of stay of tax demand pending appeal. The petitioner challenged the assessing officer’s order, which mandated a pre-deposit of 20% of the disputed tax demand before considering the stay application. The petitioner argued that the CBDT circular under Section 119(1)(a) of the Income Tax Act, 1961, grants the assessing officer discretion to evaluate the stay application on merit without making the pre-deposit an absolute requirement. The petitioner contended that the assessing officer failed to assess the merits of the stay request and instead imposed a mandatory 20% pre-deposit condition. The Revenue, on the other hand, argued that the petitioner had an alternative remedy to seek review before the Principal Commissioner of Income Tax and that the CBDT circulars support the requirement of a 20% deposit before granting a stay.
The Court examined the provisions of Section 119 of the Income Tax Act and prior Supreme Court rulings, including UCO Bank v. CIT and Catholic Syrian Bank Ltd. v. CIT, which established that CBDT circulars have the force of law but cannot be enforced adversely against the assessee. Referring to Gujarat High Court’s decision in Jagdish Gandabhai Shah v. Principal CIT, the Court held that the assessing officer must evaluate stay applications on merit and cannot mandate a 20% pre-deposit as a prerequisite for consideration. The Court emphasized that an assessing officer has discretion to reduce the deposit amount based on case-specific factors. Consequently, the Court ruled that the assessing officer must reconsider the stay application without making the deposit a precondition. This decision reinforces the principle that tax authorities must assess stay applications on a case-by-case basis rather than applying a blanket 20% deposit rule.
