By TIOL News Service

CHENNAI, FEB 28, 2019: THE ISSUE AT HAND BEFORE THE BENCH IS - whether when allowing or rejecting an application for stay on recovery of duty demand, the AO is obliged to probe the aspects of financial stringency, irreparable injury & undue hardship, before taking taking a final call. YES IS THE ANSWER.

The Bench also held that Instructions and Circulars issued by the Board serve as guidelines for the Department & do not have the effect of overriding the pre-requisites to be kept in mind when disposing off stay petitions.

Facts of the case

THE assessee, an individual, filed return for the relevant AY, declaring income of about Rs 6.23 lakhs. It also claimed exemption in respect of an amount of about Rs 10.19 crores. Such exemption was denied by the AO and was added to the assessee's income, which was then computed at about Rs 10.26 crores. The assessee then filed an application seeking stay on the recovery of such duty demand. However, the same was denied, thus triggering the present writ. The assessee also claimed that in light of the 'high pitched assessment', a complete stay on the recovery of duty demand should have been granted.

In writ, the High Court held that,

++ the parameters to be taken into account in considering the grant of stay of disputed demand are well settled – the existence of a prima facie case, financial stringency and the balance of convenience. ‘Financial stringency’ would include within its ambit the question of 'irreparable injury' and ‘undue hardship’ as well. It is only upon an application of the three factors that the AO can exercise discretion for the grant or rejection, wholly or in part, of a request for stay of disputed demand;

++ moreover, periodic Instructions/Circulars in regard to the manner of adjudication of stay petitions are issued by the Central Board of Direct Taxes (CBDT) for the guidance of the Departmental authorities. These guidelines issued to assist the assessing authorities in the matter of grant of stay and cannot substitute or override the basic tenets to be followed in the consideration and disposal of stay petitions. The existence of a prima facie case for which some illustrations have been provided in the Circulars themselves, the financial stringency faced by an assessee and the balance of convenience in the matter constitute the ‘trinity’, so to say, and are indispensable in consideration of a stay petition by the authority. The Board has, while stating generally that the assessee shall be called upon to remit 20% of the disputed demand, granted ample discretion to the authority to either increase or decrease the quantum demanded based on the three vital factors to be taken into consideration;

++ disposal of the request for stay by the assessee leaves much to be desired. The AO ought to have taken note of the conditions precedent for the grant of stay as well as the Circulars issued by the CBDT and passed a speaking order. Of course the petition seeking stay filed by the petitioner is itself cryptic. Notwithstanding that the assessee may not have specifically invoked the three parameters for the grant of stay, it is incumbent upon the AO to examine the existence of a prima facie case as well as call upon the assessee to demonstrate financial stringency, if any and arrive at the balance of convenience in the matter. Hence the order rejecting the stay application merits being quashed.

(See 2019-TIOL-499-HC-MAD-IT)