Karnataka High Court clarifies: 20% deposit for stay is not an absolute rule
Background of the dispute
The matter in Instakart Services Private Limited Vs PCIT (Central) came before the Karnataka High Court through a writ petition. The assessee challenged refusal of stay of recovery of income-tax demand for Assessment Year 2018-19 and sought protection from coercive recovery while its statutory appeals were pending.
The assessee’s core grievance was that the authorities had treated the CBDT Circular dated 29.02.2016 as if it mandated a uniform pre-deposit of 20% of the disputed tax demand for grant of stay, without examining whether the case involved a high-pitched assessment or genuine hardship. The writ petition also assailed the rejection of the review petition by the superior authority as being a non-speaking, mechanical order.
On the other hand, the Revenue argued in support of the impugned orders, contending that there was no infirmity in insisting on deposit as per the Circular and that the writ petition deserved to be dismissed.
Reliefs prayed before the High Court
The assessee approached the High Court seeking multiple writs and directions, notably:
- Quashing the order dated 22.12.2021 passed by respondent No.1 and the order dated 17.11.2021 passed by respondent No.2, both of which refused full stay of demand.
- A direction to grant an unconditional stay against recovery of the tax demand for Assessment Year 2018-19 during pendency of the appeal before the appellate authority (respondent No.4).
- A prohibitory writ restraining the Revenue from acting on the demand notices dated 16.11.2021 and 01.12.2021 for Assessment Year 2018-19.
- A direction to the concerned appellate authority to hear and decide the assessee’s pending appeals for Assessment Years 2016-17 and 2017-18.
Assessee’s submissions
Challenge to rigid application of 20% deposit norm
Counsel for the assessee emphasised that respondent No.2 had misapplied the CBDT Circular dated 29.02.2016. According to the impugned order, deposit of 20% of the disputed demand was treated as an inflexible, mandatory pre-condition for stay of recovery in the pending appeal.
The assessee argued that this approach runs contrary to binding judicial precedent of the Karnataka High Court, particularly the decision in Flipkart India (P.) Ltd. Vs. Assistant Commissioner of Income-tax, Circle 3(1)(1), Bengaluru – (2017) 79 Taxmann.com 159 (Karnataka), where the High Court had clarified the interplay between Circular No. 1914 and the later Circular dated 29.02.2016.
In that earlier case, the Court had held that the percentage indicated in the Circular is a guiding benchmark, not an inflexible rule, and that authorities must independently evaluate:
- Whether the assessment is unreasonably high-pitched, and
- Whether insisting on the deposit would result in genuine hardship to the assessee.
Non-speaking rejection of review
It was further submitted that the assessee’s review petition before respondent No.1 had been dismissed without proper reasoning. The order was described as cryptic and non-speaking, lacking any discernible application of mind to the issues of hardship or high-pitched assessment, and failing to engage with the principles laid down in the Flipkart judgment.
On these grounds, the assessee sought quashing of both impugned orders and protection from coercive recovery, at least until the appeals were finally adjudicated.