Stay application cannot be rejected arbitrarily. AO should not act as a mere tax-gatherer but as a quasi-judicial authority vested with the power of mitigating hardship to the assessee.

Hon’ble High Court of Gujarat in the case of Harsh Dipak Shah vs. UOI have held that the discretion to be exercised judicially by the AO. The court has further held that 20% pre-deposit for stay is not mandatory.

In this case, several assessment proceedings were concluded for AYs against the assessee and aggregate demand of approximately Rs. 373 Crores was raised. The assessee was in appeal against these assessments. The Assessee filed stay application against the recovery proceedings; however the same were rejected arbitrarily and assesse was asked to deposit 20% of the total demand.

The finding and landmark observation by the High Court was as under:

1. Section 226 provides discretion to the tax authorities wherein it may grant stay conditionally or unconditionally or may even decline to grant any stay. However, this discretion has to be in a judicious manner and cannot be in an arbitrary or mechanical manner.

2. The AO should apply his mind to the facts and  of the case relevant to the exercise of the discretion, in all its aspects. AO has to remember that he is not the final arbiter of the disputes involved but only the first amongst the statutory authorities.

3. AO should not act as a mere tax-gatherer but as authority vested with the power of mitigating hardship to the assessee.

 

4. The AO should divorce himself from his position as the person who made the assessment and consider the matter from a point of view of the assessee at the same time without sacrificing the interests of the Revenue.

5. The tax authorities should not get over zealousness to protect the interest of the revenue. There is nothing magical in the figure of 20%; to balance the equities the tax authorities may even grant stay the recovery on deposit of 5% or 10% as the circumstance may demand as pre-deposit in case of high pitched assessment, for example, if the assessed income is twice or thrice the returned income.

6. Authorities need to keep in mind the following: (i)Prima Facie case; (ii) balance of convenience; (iii) irreparable injury that may be caused to the assesse which cannot be compensated in terms of money; (iv) whether the assessee has come before the authority with clean hands.

7. Even if the assessee may not have specifically invoked these parameters, 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.

8. The requirements of reasonableness, rationality, impartiality,  fairness  and equity are inherent in any exercise of discretion; such an exercise can never be according to the private opinion.

9. In this case the tax authorities have not considered anything and have mechanically declined to grant stay which is impermissible.