20% Pre-Deposit Not Mandatory For Stay Of Income Tax Demand; AO Must Independently Exercise Discretion Under Section 220(6) Income Tax Act: Delhi High Court
Isabella Mariam
The High Court of Delhi Division Bench of Justice V. Kameswar Rao and Justice Vinod Kumar set aside an income tax authority’s order that declined to keep recovery of a disputed demand in abeyance during the pendency of the assessee’s first appeal and directed a fresh decision on the stay request. The Court held that payment of 20% of the disputed demand is not a mandatory condition for considering a stay and that the Assessing Officer must take an independent, case-specific decision while exercising discretion under Section 220(6) of the Income Tax Act, 1961. In doing so, the Bench relied on its earlier decision in NASSCOM v. Deputy Commissioner of Income-tax (Exemption) (2024), which held that a 20% pre-deposit is not a precondition for entertaining a stay application pending the first appeal.
The writ petition was instituted by a private company challenging an order passed by the income tax authority rejecting its application for stay of demand during the pendency of a statutory appeal.
The petitioner had filed its return of income for the relevant assessment year declaring a loss, following which the case was selected for scrutiny and an assessment order was passed raising a tax demand. Aggrieved by the assessment, the petitioner preferred an appeal before the appellate authority and simultaneously moved an application seeking stay of recovery of the demand under the statutory provision governing treatment of an assessee as not in default. The stay application was rejected by the Assessing Officer through a brief order, primarily on the ground that the petitioner had not deposited 20% of the outstanding demand, referring to departmental office memorandums.
The petitioner contended that the rejection was mechanical and non-speaking, and that the authority had failed to consider the prima facie merits of the appeal, balance of convenience, and hardship. The respondents defended the order by relying on the said office memorandums.
The Court examined the scope of discretion vested in the Assessing Officer while dealing with applications for stay of demand. It observed that the office memorandums relied upon by the revenue authorities “neither prescribe nor mandate 15% or 20% of the outstanding demand… being deposited as a pre-condition for grant of stay”. Referring to earlier binding precedents, the Court recorded that the Assessing Officer is empowered “in his discretion and subject to such conditions as he may think fit to impose in the circumstances of the case”.
The Bench stated that treating the 20% deposit as an inflexible requirement would be “wholly incorrect” and contrary to the statutory language. It further noted that the impugned order did not advert to the prima facie merits of the petitioner’s case, nor did it deal with the issue of hardship. The Court observed that proceeding on the assumption that a stay application could not even be entertained without a pre-deposit was “thoroughly misconceived and wholly untenable in law”.
Relying on a consistent line of authority, the Court recorded that discretion under the relevant provision must be exercised judicially, keeping in view factors such as prima facie case, balance of convenience, and likelihood of success. It noted that mechanical reliance on departmental instructions, without independent application of mind, vitiates the decision-making process. The Court also observed that failure to consider a pending stay application while enforcing recovery renders the action arbitrary and unfair.
The Court directed: “Noting the position of law, we deem it appropriate to set aside the impugned order dated 13.11.2025, and remit the matter to the AO, who shall examine the application for stay afresh, bearing in mind the legal principles as laid down in NASCOMM (supra) and Centre for Policy Research (supra) and pass a fresh order”
The petition is disposed of, along with pending application(s), in the above terms.”
Advocates Representing the Parties
For the Petitioner: Mr. Aseem Chawla, Senior Advocate, with Mr. Atulya Sharma, Ms. Pratishtha Chaudhary, and Ms. Sejal Garg, Advocates.
For the Respondents: Mr. Indruj Singh Rai, Senior Standing Counsel, with Mr. Sanjeev Menon and Mr. Rahul Singh, Junior Standing Counsels, and Mr. Gaurav Kumar, Advocate.
Case Title: Clearmedi Healthcare Private Limited v. Deputy Commissioner of Income-Tax & Ors.
Neutral Citation: 2025: DHC:11737-DB
Case Number: W.P.(C) 19495/2025
Bench: Justice V. Kameswar Rao, Justice Vinod Kumar
