Complete Stay Must Be Granted if Disputed Issue is Settled

Complete Stay Must Be Granted if Disputed Issue is Settled by Jurisdictional High Court

Issue

Whether the tax authorities can validly compel an assessee to deposit 20% of a disputed tax demand under Section 220 as a condition for a stay of recovery, when the underlying issue has already been decided in favor of the assessee by the jurisdictional High Court.

Facts

The Assessing Officer passed statutory assessment orders for the assessment years 2020-21 and 2021-22, raising tax demands by disallowing Employee Stock Option Plans (ESOP) expenditure.
Facing these tax demands, the assessee filed a stay application under Section 220 of the Income-tax Act, 1961, seeking a pause on the recovery proceedings.
The Principal Commissioner passed an administrative order directing the assessee to deposit 20% of the total disputed demand as a pre-condition to grant the stay.
The assessee challenged this direction, submitting that the standard condition of a 20% deposit cannot be enforced because the core issue regarding ESOP expenditure disallowance was already settled in their favor by the jurisdictional High Court.

Decision

Held, yes: Under normal circumstances, when the jurisdictional High Court has already ruled in favor of a taxpayer on an issue, the Assessing Officer or Competent Authority must grant a complete stay of the demand under Section 220(6).
Held, yes: The judgments pronounced by a jurisdictional High Court carry binding legal precedent over all subordinate tax authorities within its territorial jurisdiction, including officers deciding stay applications.
Held, yes: The impugned orders are set aside to the extent that they mandated a 20% deposit as a condition for staying the recovery.
Held, yes: The tax recovery proceedings against the assessee shall remain completely stayed until the pending departmental appeals are fully disposed of.
In favour of assessee: The ruling is delivered entirely in favor of the assessee.

Key Takeaways

Binding Nature of High Court Precedents: Subordinate tax authorities do not have the discretion to ignore a jurisdictional High Court’s ruling. A binding precedent in favor of the taxpayer nullifies the justification for demanding a conditional tax deposit.
Exceptions to the 20% Rule: The administrative guidelines instructing tax officers to collect a minimum 20% deposit before granting a stay are subject to judicial exceptions, particularly where the assessment order is prima facie contrary to settled higher-court law.
Right to a Full Stay: When an assessment is built on a disallowance that has been legally struck down by the jurisdictional High Court, forcing the taxpayer to lock up capital through a conditional deposit is an error in the exercise of administrative power.

HIGH COURT OF DELHI

Cadence Design Systems India (P.) Ltd.

Principal Commissioner of Income-tax^*

Dinesh Mehta and Vinod Kumar, JJ.

W.P. (C) Nos. 15099 & 15101 OF 2025
CM APPL. Nos. 62094 and 62098 of 2025

MAY 4, 2026

Sachit Jolly, Sr. Adv., A.S. Bajpai, Sohum Dua, Ms. Manvi, Ms. Mansha Anand, Ms. Saloni Ray and Ghunaim Siddiqui, Advs. for the Petitioner. Anurag Ojha, SSC V.K. Saksena and Ms. Hemlata Rawat, JSCs for the Respondent.

ORDER

1. Both writ petitions filed under Articles 226 & 227 of the Constitution of India impugn the order dated 15.09.2025 passed by the Principal Commissioner of Income Tax, PCIT, Delhi-1 (hereinafter referred to as ‘the Competent Authority’), whereby the petitioner’s request for stay of the demand for assessment years 2020-21 & 2021-22 has been practically rejected.

2. Succinctly stated, the facts germane are that during the relevant assessment years, the Assessing Officer passed two separate assessment orders against the petitioner on 27.09.2023 (AY 2020-21) & 23.12.2024 (AY 2021-22), and raised demands in relation to disallowance of Employee Stock Option Plans (ESOP) expenditure.

3. In the memo of appeal so also in the stay applications dated 31.10.2023 (2020-21) and 21.01.2025 (2021-22) filed under Section 220(6) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act of 1961’), the assessee relied upon a judgment rendered by this Court in Pr. CIT v. Lemon Tree Hotels (P.) Ltd. (SC) and various other judgments.

4. The Competent Authority passed the impugned order and asked the assessee to deposit 20% of the disputed demand.

5. Mr. Jolly, learned Senior Counsel submitted that the impugned order passed by the Competent Authority is clearly contrary to law and against Circulars dated 29.02.2016 and 31.07.2017 issued by the Central Board of Direct Taxes (hereinafter referred to as ‘CBDT’). He invited Court’s attention towards paragraph No.4(B)(b) of the Circular dated 29.02.2016 and submitted that even as per the said Circular, if an issue has been decided in assessee’s favour by jurisdictional High Court, the requirement of deposit of 15% or 20%, as the case may be reduced appropriately.

6. Learned Senior Counsel further argued that an assessee cannot be asked to deposit even 20% of the disputed demand, where the issue has already been settled by the jurisdictional High Court, whose judgment is binding throughout the territorial boundaries and over all State authorities.

7. Mr. Anurag Ojha, learned Senior Standing Counsel for the respondent-Department, on the other hand argued that the Circular only provides that an Assessing Officer can direct deposit of any amount lower than 15% or 20%, as the case may be and therefore, a blanket stay cannot be claimed. In other words, he submitted that the petitioner be asked to deposit some amount lesser than 20% of the disputed demand.

8. He further stated that in any case, CIT v. New Delhi Television Ltd. [Civil Appeal No. 1564 of 2017] on the very same issue arising from the judgment of the High Court of Delhi is pending before the Supreme Court and prayed that interim stay be not granted.

9. Heard learned Counsel for the parties and perused the record including the Circular dated 29.02.2016.

10. According to us, the leeway granted in this circular which gives the impression that the Assessing Officer may ask the assessee to deposit a lesser amount than 20%, cannot be construed to mean that in every case the Assessing Officer or the Competent Authority shall ask the assessee to deposit 20% of the due demand. Once the jurisdictional High Court has taken a view, in normal circumstances, the Assessing Officer or the Competent Authority deciding an application under Section 220(6) of the Act of 1961 is supposed to grant a complete stay, because judgments of High Court are binding on all the authorities including, the authority deciding the stay application.

11. We, therefore, allow the writ petitions and set aside the impugned orders passed by the Deputy Commissioner of Income Tax, Circle 4(2) Delhi dated 21.05.2024 (2020-21) and 18.08.2025 (2021-22) so also the order dated 15.09.2025 passed by the Competent Authority for both assessment years (2020-21 and 2021-22), to the extent they require 20% of demand pursuant to the impugned assessment orders dated 27.09.2023 (2020-21) and 23.12.2024 (2021-22) to be deposited as a condition for grant of stay of remaining recovery.

12. Needless to observe that till disposal of the appeals, the recovery proceedings against the petitioner shall remain stayed.

13. The Assessing Officer to do requisite entry in Income Tax Business Application (ITBA) Portal.

14. The petitions stand allowed accordingly. All pending applications are also disposed of.