AVANTHA REALTY LIMITED vs. THE PRINCIPAL COMMISSIONER OF INCOME TAX CENTRAL DELHI 2 & ANR.

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W.P.(C)/2615/2024HC DelhiDLHC01008107202421 February 2024Bench: HON'BLE MR. JUSTICE YASHWANT VARMA,HON'BLE MR. JUSTICE PURUSHAINDRA KUMAR KAURAV6 pages
AI SummaryRemanded

What did the High Court hold?

The High Court held that the impugned orders were unsustainable. It noted that the Supreme Court in PCIT v. LG Electronics India Pvt. Ltd. had clarified that tax authorities have the discretion to grant stay orders for a lesser amount than 20% of the demand, pending appeal, based on individual case facts. The High Court further referred to its own decision in Dr. B.L. Kapur Memorial Hospital v. CIT, which reiterated that the 20% deposit requirement is directory and can be relaxed. The Court observed that the impugned orders were non-reasoned and failed to consider the principles of prima facie case, balance of convenience, and irreparable injury. Although the petitioner had a laxity in directly raising contentions before the Principal Commissioner, the Court, in the interest of justice, granted the petitioner liberty to move the Principal Commissioner afresh with all contentions. The Principal Commissioner was directed to decide any fresh application without being influenced by the previous orders. The writ petition was disposed of with these directions, and all rights and contentions of the parties were kept open. No coercive action was to be taken until the stay application was decided.

What were the facts?

The petitioner, Avantha Realty Limited, filed a writ petition challenging orders dated May 26, 2022, and February 12, 2024, passed by the Assistant and Principal Commissioners of Income Tax. These orders disposed of an application made under Section 220(6) of the Income Tax Act, 1961. The application was made in response to an outstanding demand of Rs. 132.58 crores, which arose from an assessment order dated April 8, 2022. This demand is currently under appeal before the Commissioner of Income Tax (Appeals). The impugned orders were primarily based on a CBDT Office Memorandum dated July 31, 2017, which stipulated that assessees might be granted interim protection subject to depositing 20% of the total outstanding demand.

What were the issues?

1. Whether the impugned orders, which rejected the application for stay of demand under Section 220(6) of the Income Tax Act, 1961, by mandating a 20% deposit based on the CBDT Office Memorandum dated July 31, 2017, are sustainable in light of the Supreme Court's decision in PCIT v. LG Electronics India Pvt. Ltd. and the High Court's decision in Dr. B.L. Kapur Memorial Hospital v. CIT? Assessee's Contentions: - The impugned orders are unsustainable as they rigidly applied the 20% deposit condition from the CBDT Office Memorandum, failing to consider individual case facts and principles like prima facie case, balance of convenience, and irreparable loss. - The assessment of fair market value of the property at Rs. 685 crores by the Assessing Officer was arbitrary and violative of Section 50C of the Act, especially since the property was purchased for Rs. 378 crores and valued by stamp duty authorities at Rs. 390 crores and by a Valuation Officer at Rs. 418 crores. - The respondents incorrectly assumed Section 50D was attracted. - Relied on PCIT v. LG Electronics India Pvt. Ltd. and Dr. B.L. Kapur Memorial Hospital v. CIT, arguing the 20% condition is directory, not mandatory, and can be relaxed. Revenue's Contentions: - While 'prima facie case' aspects were alluded to before the Assistant Commissioner, they were not clearly canvassed before the Principal Commissioner. - There is no justification to interfere with the impugned orders based on issues not pressed before the authorities.

Which sections of the Income-tax Act were involved?

Section 220(6),Section 50C,Section 50D

AI-generated summary — verify with the full judgment below

W.P.(C) 2615/2024

Page 1 of 6

$~70 * IN THE HIGH COURT OF DELHI AT NEW DELHI + W.P.(C) 2615/2024

AVANTHA REALTY LIMITED

..... Petitioner Through: Mr. Ajay Vohra, Sr. Adv. with Mr. Neeraj Jain, Mr. Upvan Gupta, Mr. Aniket D. Agrawal and Mr. Saksham Singhal, Advs.

versus

THE PRINCIPAL COMMISSIONER OF INCOME TAX

CENTRAL DELHI 2 & ANR.

..... Respondents

Through: Mr. Vipul Agrawal, Sr. Standing Counsel along with Mr. Gibran Naushad and Ms. Sakshi Shairwal, Jr. Standing Counsels.

CORAM:

HON'BLE MR. JUSTICE YASHWANT VARMA

HON'BLE MR. JUSTICE PURUSHAINDRA KUMAR

KAURAV

O R D E R %

21.02.2024

CM APPL. 10740/2024 (Exemption)

Allowed, subject to all just exceptions.

Application stands disposed of. W.P.(C) 2615/2024 1. The instant writ petition impugns the orders dated 26 May 2022 and 12 February 2024 passed by the Assistant and Principal Commissioners of Income Tax disposing of the application made under Section 220(6) of the Income Tax Act, 19611. The application

1 Act This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 28/02/2024 at 11:29:31

W.P.(C) 2615/2024

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itself came to be made pursuant to the stand of the respondents that a demand of Rs.132.58/- crores was outstanding. The aforesaid demand which stems from an order of assessment dated 08 April 2022 presently forms subject matter of challenge in an appeal which has been preferred before the Commissioner of Income Tax (Appeals) [“CIT(A)”]. 2. We note that the impugned orders are principally based on the instructions of the Central Board of Direct Tax [“CBDT”] as encapsulated in the Office Memorandum dated 31 July 2017 and which had while dealing with the manner in which the power under Section 220(6) of the Act is liable to be exercised had held that assessees’ may be accorded interim protection subject to deposit of 20% of the total outstanding demand failing which they would be treated as an “assessee in default”. 3. Insofar as the aforesaid Office Memorandum is concerned, suffice it to note that while considering its ambit the Supreme Court in Principal Commissioner of Income Tax 5 and Others vs. LG Electronics India Private Limited2 had held as follows:- “1. Delay condoned. Leave Granted. 2. Having heard Shri Vikramjit Banerjee, learned ASG appearing on behalf of the appellant, and giving credence to the fact that he has argued before us that the administrative circular will not operate as a fetter on the Commissioner since it is a quasi-judicial authority, we only need to clarify that in all cases like the present, it will be open to the authorities, on the facts of individual cases, to grant deposit orders of a lesser amount than 20%, pending appeal. 3. The appeal is disposed of accordingly. Pending application, if any, shall stand disposed of.”

4.

While this would have been sufficient to set aside the orders

2 (2018) 18 SCC 447 This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 28/02/2024 at 11:29:31

W.P.(C) 2615/2024

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impugned, Mr. Vohra, learned senior counsel has additionally contended that while considering the application under Section 220(6) of the Act, it was incumbent upon the Assistant and Principal Commissioners of Income Tax to deal with factors such as prima facie case, balance of convenience and irreparable loss that may be caused. According to learned senior counsel, the respondents have proceeded to pass the impugned orders proceeding on the assumption that the Office Memorandum dated 31 July 2017 commands them to inevitably require a deposit of 20%. 5. Taking us briefly through the facts itself and insofar as they relate to the question of Long Term Capital Gains, Mr. Vohra pointed out that the subject immovable property was purchased for a total sale consideration of Rs.378/- crores. The value of the aforesaid property as per the stamp duty authorities was Rs.390/- crores. It was pointed out that the Assessing Officer3 referred the issue of determination of fair market value of the said property to a Valuation Officer who determined the same to be Rs.418/- crores. However, Mr. Vohra submits that the AO proceeding arbitrarily undertook a fresh assessment of fair market value and sought to peg the same at Rs.685/- crores taking into account the credit facility obtained upon mortgage of the subject property. 6. According to learned counsel, the manner in which the fair market value was assessed is violative of Section 50C of the Act. It was further contended that the respondents have incorrectly assumed that the provisions of Section 50D stood attracted even though the fair market value of the property already stood determined and ascertained.

3 AO This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 28/02/2024 at 11:29:31

W.P.(C) 2615/2024

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7.

Mr. Vohra referred to the decision of the Division Bench of this Court in Dr. B.L. Kapur Memorial Hospital vs. Commissioner of Income Tax and Others4 wherein the Court had observed as follows: “7. Learned Senior Counsel for the petitioner further states that respondents while disposing of the petitioner's applications have failed to appreciate that the condition under impugned office memorandum dated 31-7-2017, read with the office memorandum dated 29-2-2016, stating that, “the assessing officer shall grant stay of demand till disposal of the first appeal on payment of twenty per cent of the disputed demand”, is merely directory in nature and not mandatory. In support of his submission, he relies on the decision of the Supreme Court in CIT v. LG Electronics India (P) Ltd. [CIT v. LG Electronics India (P) Ltd.(2018) 18 SCC 447] wherein it has been held that it is open to the tax authorities, on the facts of individual cases, to grant stay against recovery of demand on deposit of a lesser amount than 20 per cent of the disputed demand, pending disposal of appeal.

xxx

xxx

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9.

Having heard learned counsel for the parties and having perused the two office memorandums in question, this Court is of the view that the requirement of payment of twenty per cent of disputed tax demand is not a prerequisite for putting in abeyance recovery of demand pending first appeal in all cases. The said precondition of deposit of twenty per cent of the demand can be relaxed in appropriate cases. Even the office memorandum dated 29-2-2016, gives instances like where addition on the same issue has been deleted by the appellate authorities in the previous years or where the decision of the Supreme Court or jurisdictional High Court is in favour of the assessee. In fact, as pointed out by the learned Senior Counsel for the petitioner, the Supreme Court in CIT v. LG Electronics India (P) Ltd. [CIT v. LG Electronics India (P) Ltd.(2018) 18 SCC 447] has held that tax authorities are eligible to grant stay on deposit of amounts lesser than twenty per cent of the disputed demand in the facts and circumstances of a case.

10.

In the present cases, the impugned orders are non-reasoned orders. Neither the assessing officer nor the CIT have either dealt with the contentions and submissions advanced by the petitioner nor has considered the three basic principles i.e. the prima facie case, balance of convenience and irreparable injury while deciding the stay application.

4 2022 SCC OnLine Del 4120 This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 28/02/2024 at 11:29:31

W.P.(C) 2615/2024

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11.

Consequently, the impugned orders and notices are set aside and the matters are remanded back to Respondent 1 CIT for fresh adjudication in the application for stay. However, before deciding the stay application, the CIT shall grant a personal hearing to the authorised representative of the petitioner. For this purpose, list the matter before Respondent 1 CIT on 12-12-2022.

12.

It is clarified that till the stay applications filed by the petitioner are not decided, no coercive action shall be taken by the respondents against the petitioner in pursuance to the demands arising out of the impugned orders. With the aforesaid directions, the present writ petitions along with pending applications stand disposed of.”

8.

Opposing the grant of the reliefs as claimed, Mr. Agrawal submitted that while all the aforesaid aspects and which relate to “prima facie case” appear to have been alluded to in passing before the Assistant Commissioner, they were clearly not canvassed for the consideration of the Principal Commissioner. In view of the aforesaid, Mr. Agarwal contended that there would be no justification to interfere with or set aside the impugned orders based on a consideration of issues which had not even been pressed before the two authorities. 9. Mr. Vohra, however, refers to the ultimate application that was filed before the Principal Commissioner and which had in turn referred to the original stay application which had been moved before the Assistant Commissioner. 10. However, and in our considered opinion, there clearly appears to have been a laxity on the part of the petitioner to have directly raised the contentions noticed briefly by us hereinabove before the Principal Commissioner. That authority has thus been deprived of the opportunity to examine the issues of prima facie case or “undue hardship” in the context of the challenges which have been raised to the computation of fair market value by the AO. This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 28/02/2024 at 11:29:31

W.P.(C) 2615/2024

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11.

In view of the aforesaid, we are of the opinion that the ends of justice would warrant the petitioner being accorded the liberty to move the Principal Commissioner afresh raising such contentions as may be chosen and advised. Any application in this respect that may be moved shall be decided by the Principal Commissioner without being influenced by the orders dated 26 May 2022 and 12 February 2024. 12. The writ petition stands disposed of in terms of the above. The orders impugned before us shall abide by the fresh decision which the Principal Commissioner shall now take in terms of our directions contained in para 11 of this order. 13. All rights and contentions of respective parties are kept open.

YASHWANT VARMA, J.

PURUSHAINDRA KUMAR KAURAV, J. FEBRUARY 21, 2024/RW This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 28/02/2024 at 11:29:31

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