Case Law Details
Cadence Design Systems India Pvt. Ltd. Vs PCIT (Delhi High Court)
Delhi High Court Grants Full Stay on Tax Demand Because Jurisdictional Precedent Favoured Assessee; 20% Tax Deposit Condition Set Aside Due to Binding High Court Ruling on ESOP Issue; Complete Stay of Recovery Allowed Because High Court Judgments Bind Tax Authorities; Delhi High Court Quashes Tax Recovery Condition in ESOP Expenditure Dispute.
The Delhi High Court considered two writ petitions filed under Articles 226 and 227 of the Constitution challenging an order dated 15.09.2025 passed by the Principal Commissioner of Income Tax, Delhi-1. The impugned order had effectively rejected the petitioner’s request for stay of tax demand for Assessment Years (AYs) 2020-21 and 2021-22 by directing the petitioner to deposit 20% of the disputed demand.
The dispute arose after the Assessing Officer passed separate assessment orders on 27.09.2023 for AY 2020-21 and on 23.12.2024 for AY 2021-22, raising tax demands related to disallowance of Employee Stock Option Plan (ESOP) expenditure.
The petitioner filed appeals and stay applications under Section 220(6) of the Income Tax Act, 1961. In support of the stay applications dated 31.10.2023 and 21.01.2025, the petitioner relied upon the Delhi High Court judgment in Principal Commissioner of Income Tax, Delhi v. Lemon Tree Hotels Pvt. Ltd. and other judicial precedents. The petitioner contended that the issue had already been decided in favour of the assessee by the jurisdictional High Court.
Senior counsel for the petitioner argued that the impugned order was contrary to law and inconsistent with CBDT Circulars dated 29.02.2016 and 31.07.2017. Reliance was placed on paragraph 4(B)(b) of the Circular dated 29.02.2016, which provides that where an issue has been decided in favour of the assessee by the jurisdictional High Court, the standard requirement of deposit of 15% or 20% of disputed demand may be appropriately reduced.
The petitioner argued that once the jurisdictional High Court had settled the issue, authorities could not insist upon even a 20% deposit for grant of stay because High Court judgments are binding on all authorities functioning within their territorial jurisdiction.
The Revenue argued that the CBDT Circular only enabled the Assessing Officer to direct deposit of an amount lower than 15% or 20%, but did not entitle an assessee to an automatic blanket stay. The Department submitted that the petitioner could still be required to deposit some amount less than 20% of the disputed demand.
The Revenue further contended that Civil Appeal No. 1564/2017, Commissioner of Income Tax-V vs. M/s New Delhi Television Ltd., involving the same issue and arising from a Delhi High Court judgment, was pending before the Supreme Court. On this basis, the Department requested that interim stay should not be granted.
After hearing both sides and examining the record and CBDT Circular dated 29.02.2016, the High Court held that the flexibility provided in the circular could not be interpreted to mean that in every case authorities must insist upon a 20% deposit of disputed demand. The Court observed that where the jurisdictional High Court has already taken a view on the issue, the normal course should be grant of complete stay because High Court judgments are binding on all authorities, including those deciding stay applications under Section 220(6).
Accordingly, the Court allowed the writ petitions and set aside the orders dated 21.05.2024 and 18.08.2025 passed by the Deputy Commissioner of Income Tax, as well as the order dated 15.09.2025 passed by the Competent Authority, insofar as they required deposit of 20% of the disputed demand arising from the assessment orders dated 27.09.2023 and 23.12.2024 as a condition for stay of recovery.
The Court further directed that recovery proceedings against the petitioner would remain stayed until disposal of the appeals. The Assessing Officer was also directed to make the necessary entry in the Income Tax Business Application (ITBA) Portal. The petitions and pending applications were disposed of accordingly.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. Both writ petitions filed under Articles 226 & 227 of the Constitution of India impugn the order dated 15.09.2025 passed by the Principal Commissioner of Income Tax, PCIT, Delhi-1 (hereinafter referred to as ‘the Competent Authority’), whereby the petitioner’s request for stay of the demand for assessment years 2020-21 & 2021-22 has been practically rejected.
2. Succinctly stated, the facts germane are that during the relevant assessment years, the Assessing Officer passed two separate assessment orders against the petitioner on 27.09.2023 (AY 2020-21) & 23.12.2024 (AY 2021-22), and raised demands in relation to disallowance of Employee Stock Option Plans (ESOP) expenditure.
3. In the memo of appeal so also in the stay applications dated 31.10.2023 (2020-21) and 21.01.2025 (2021-22) filed under Section 220(6) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act of 1961’), the assessee relied upon a judgment rendered by this Court in Principal Commissioner of Income Tax, Delhi v. Lemon Tree Hotels Pvt. Ltd. reported in [2019] 104 com 27 (SC) and various other judgments.
4. The Competent Authority passed the impugned order and asked the assessee to deposit 20% of the disputed demand.
5. Mr. Jolly, learned Senior Counsel submitted that the impugned order passed by the Competent Authority is clearly contrary to law and against Circulars dated 29.02.2016 and 31.07.2017 issued by the Central Board of Direct Taxes (hereinafter referred to as ‘CBDT’). He invited Court’s attention towards paragraph No.4(B)(b) of the Circular dated 29.02.2016 and submitted that even as per the said Circular, if an issue has been decided in assessee’s favour by jurisdictional High Court, the requirement of deposit of 15% or 20%, as the case may be reduced appropriately.
6. Learned Senior Counsel further argued that an assessee cannot be asked to deposit even 20% of the disputed demand, where the issue has already been settled by the jurisdictional High Court, whose judgment is binding throughout the territorial boundaries and over all State authorities.
7. Mr. Anurag Ojha, learned Senior Standing Counsel for the respondent-Department, on the other hand argued that the Circular only provides that an Assessing Officer can direct deposit of any amount lower than 15% or 20%, as the case may be and therefore, a blanket stay cannot be claimed. In other words, he submitted that the petitioner be asked to deposit some amount lesser than 20% of the disputed demand.
8. He further stated that in any case, Civil Appeal No. 1564/2017 titled Commissioner of Income Tax – V vs. M/s New Delhi Television Ltd. on the very same issue arising from the judgment of the High Court of Delhi is pending before the Supreme Court and prayed that interim stay be not granted.
9. Heard learned Counsel for the parties and perused the record including the Circular dated 29.02.2016.
10. According to us, the leeway granted in this circular which gives the impression that the Assessing Officer may ask the assessee to deposit a lesser amount than 20%, cannot be construed to mean that in every case the Assessing Officer or the Competent Authority shall ask the assessee to deposit 20% of the due demand. Once the jurisdictional High Court has taken a view, in normal circumstances, the Assessing Officer or the Competent Authority deciding an application under Section 220(6) of the Act of 1961 is supposed to grant a complete stay, because judgments of High Court are binding on all the authorities including, the authority deciding the stay application.
11. We, therefore, allow the writ petitions and set aside the impugned orders passed by the Deputy Commissioner of Income Tax, Circle 4(2) Delhi dated 21.05.2024 (2020-21) and 18.08.2025 (2021-22) so also the order dated 15.09.2025 passed by the Competent Authority for both assessment years (2020-21 and 2021-22), to the extent they require 20% of demand pursuant to the impugned assessment orders dated 27.09.2023 (2020-21) and 23.12.2024 (2021-22) to be deposited as a condition for grant of stay of remaining recovery.
12. Needless to observe that till disposal of the appeals, the recovery proceedings against the petitioner shall remain stayed.
13. The Assessing Officer to do requisite entry in Income Tax Business Application (ITBA) Portal.
14. The petitions stand allowed accordingly. All pending applications are also disposed of.
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