Requirement to deposit 20% of the disputed demand as per the said CBDT Circular is directory in nature and not mandatory.
Recently Karnataka HC has held that requirement to deposit 20% of the disputed demand as per the said CBDT Circular is directory in nature and not mandatory.
Let us have a Short Overview of the case:
Instakart Services (P.) Ltd. v. Principal Commissioner of Income-tax (Central), Bengaluru [2025] 175 taxmann.com 998 (Karnataka HC) | Date: 04-04-2025
The Karnataka High Court quashed the impugned orders passed by the tax authorities which had rejected the assessee’s stay application solely on the ground of non-payment of 20% of the disputed demand as stipulated in the CBDT Circular dated 29.02.2016.
The Court held that the requirement to deposit 20% of the disputed demand as per the said CBDT Circular is directory in nature and not mandatory. Consequently, the Court directed the Appellate Authority to dispose of the pending appeal without insisting on the payment of 20% and also restrained the revenue authorities from taking any coercive action until the disposal of the appeal.
The judgment relied heavily on the earlier precedent set in Flipkart India (P.) Ltd. v. ACIT, where similar observations were made regarding the directory nature of the CBDT Circular.
Court’s Interpretation of 20% Payment Requirement as Directory, Not Mandatory:
The Court made the following key observations in interpreting the nature of the 20% requirement:
– Reference to Circulars:
The Court noted that the CBDT Circular dated 29.02.2016 was only a partial modification of earlier Instruction No. 1914 dated 21.03.1996, and did not override it in entirety. The latter allowed for discretionary consideration based on factors like whether the demand was unreasonably high-pitched or caused genuine hardship.
– Discretion of Authorities:
The Court emphasized that both the Assessing Officer and superior authorities must evaluate:
Whether the demand is high-pitched.
Whether genuine hardship would be caused by insisting on deposit.
The overall facts and circumstances of each case.
Merely applying the 20% threshold mechanically defeats the purpose of fair and discretionary justice.
– Non-Speaking and Mechanical Orders:
The revenue authorities’ rejection of the stay application was found to be cryptic and mechanical, lacking any discussion on hardship or merits. This was contrary to the intent of the Circulars.
– Reliance on Precedent:
The Court followed its earlier decision in Flipkart India Pvt. Ltd., where it held that the 15%/20% rule is not sacrosanct and that authorities are expected to exercise discretion judicially.
– No Precedential Value:
While granting relief, the Court explicitly mentioned that this order was passed in light of peculiar/special circumstances and should not be treated as precedent – reinforcing the case-specific application of discretion.
The copy of the order is as under:
