Conditional Stay Orders Relying Mechanically on 20% Deposit

Conditional Stay Orders Relying Mechanically on 20% Deposit Guidelines Are Unsustainable and Remanded for Independent Decision

Issue

Whether an authority deciding a stay application under Section 220(6) must independently exercise its discretionary powers rather than mechanically relying on CBDT executive instructions.
Whether imposing a mandatory condition to deposit 20% of the outstanding demand for granting a stay, solely based on CBDT guidelines, is legally sustainable.

Facts

The assessee filed applications under Section 220 seeking a stay of tax recovery pending appeals before the appellate authority for Assessment Years 2022-23 to 2024-25.
The revenue authorities decided the stay applications by relying on CBDT instructions that outline standard conditions for granting stay.
The authorities directed the assessee to deposit 20% of the total outstanding demand as a precondition for granting stay of the remaining demand.
The assessee challenged the stay orders on the ground that the authority failed to apply independent administrative discretion and acted solely on executive circulars.

Decision

Held that while exercising powers under Section 220(6), the competent authority must exercise its statutory discretionary powers independently based on the facts of each case.
Held that reliance on executive instructions or CBDT circulars to routinely mandate a 20% deposit for granting stay is legally unsustainable.
The impugned stay orders imposing the 20% deposit condition were set aside, and the matter was remanded back to the authority to pass fresh orders under Section 220(6) purely on statutory merits, uninfluenced by administrative instructions.

Key Takeaways

Statutory Discretion Over Executive Guidelines: CBDT circulars prescribing a standard 20% deposit are administrative guidelines and cannot fetter or replace the statutory discretionary powers vested under Section 220(6).
Quasi-Judicial Application of Mind: Stay applications must be assessed on individual merits, taking into consideration key parameters such as aprima facie case, financial hardship, and balance of convenience.
Mechanical Orders Invalid: Mandating a percentage deposit without evaluating the specific circumstances of the assessee renders the stay order illegal and liable to be set aside on appeal or writ.

HIGH COURT OF TELANGANA

VSAIPPL-SMC(JV)

Income-tax Officer

P.Sam Koshy and VAKITI RAMAKRISHNA REDDY, JJ.

WRIT PETITION Nos. 27454, 27512 and 27534 of 2026

AUGUST 20, 2026

1. Heard Mr.A.V.A.Siva Kartikeya, learned counsel appearing for the petitioner and Mr.Raja Shekar Rao Salvaji, learned Senior Standing Counsel for Income Tax Department, appearing for the respondents. Perused the record.

2. In the present writ petitions, the impugned orders passed are in respect of the same assessee, but relate to different assessment years. Therefore, the Bench has decided to hear all the matters together and dispose of them through a common order.

3. The writ petitions are one which were filed assailing the order dated 09.04.2025 for the assessment years 2022-2023, 2023-2024 and 2024-25 passed by respondent No.1 respectively and also order dated 30.01.2026 passed by respondent No.2. Vide the two impugned orders, the authorities have put a condition on stay application for payment of 20% of the demand for staying of the remaining portion of the demand raised by the authorities.

4. Learned counsel for the petitioner referring to two orders submits that both respondent No.1 as also respondent No.2 have substantially relied upon the Central Board of Direct Taxes (CBDT) instructions dated 21.03.1996, which stood partly modified by another CBDT instructions dated 29.02.2016 and again on 31.07.2017 which prescribes for payment of 20% of the outstanding demand by the assessee in the course of staying of the remaining portion of the outstanding demand.

5. Learned counsel for the petitioner submits that the law by now is well settled that in the course of deciding an application under Section 220 (6) of the Income Tax Act, 1961 (for short “the Act”), for grant of interim stay, the authorities cannot rely upon any executive instructions passed by the CBDT, rather, they would have to decide the application on its own merits strictly in accordance with law exercising discretionary powers considering the merits of the application for interim relief, which in the instant cases having not done so by the authorities, the impugned orders are to be held to be bad in law.

6. Learned Senior Standing Counsel for the Income Tax Department, on the other hand, justifying the orders submits that even though a reference has been made to the instructions, but, later part of the orders passed by the authorities would go to show that they have considered the submissions put forth by the petitioner and thereafter, have imposed the condition of depositing 20% of the outstanding demand for the stay of the remaining portion of the outstanding demand. Thus, the writ petitions are liable to be rejected.

7. Having heard the contentions put forth on either side and a perusal of the records, more particularly, a plain reading of the impugned order dated 09.04.2025, as also order dated 30.01.2026, this Bench has no hesitation in reaching to the conclusion that both the authorities i.e. respondent No.1 as also respondent No.2 in the course of deciding the application for stay, pre-dominantly taking the stand for the deposit of 20% based upon the CBDT instructions. As has been contended by learned counsel for the petitioner, by now it is well settled proposition of law that in the course of deciding application under Section 220 of the Act seeking of stay pending the appeal before the appellate authority, the authority has to independently exercise its discretionary powers and relying on the executive instructions is not permissible. In fact, if we look at the order dated 09.04.2025 passed by respondent No.1, the order starts with reference to the instructions both in para No.1 as also para No.2 and only thereafter, the authority proceeded and decided the same, so also, in the order passed by respondent No.2 also in the decision part of the order, respondent No.2 heavily relied upon the instructions issued by the Department requiring depositing of 20% for granting of stay. This, in the opinion of this Bench is totally uncalled for.

8. A plain reading of the provisions of Section 220(6) of the Act, in itself, very emphatically makes it clear that the authority concerned has to exercise its discretion by taking into consideration the overall facts and circumstances of the case, decide the stay application, and also decide whether any conditions, if at all, have to be imposed, and, if so, what should be the nature of such conditions and to what extent. This aspect is totally absent from the impugned orders in the instant writ petitions and, therefore, in the opinion of this Bench, both the orders dated 09.04.2025 and 30.01.2026 passed by respondent No.2, being unsustainable in the eye of law, deserve to be accordingly set aside.

9. In view of the same, the matters stand remanded back to respondent No.1 to take decision afresh on the application under Section 220(6) of the Act strictly in accordance with the provisions envisaged under the Income Tax Act in this regard without being in any manner influenced by the CBDT instructions referred to in the impugned order.

10. Given the fact that we are remanding the matters to respondent No.1, let an appropriate decision be taken afresh on interim stay application within a period of four weeks. Meanwhile, the respondents shall not take any coercive steps for realizing the outstanding demand.

11. The Writ Petitions stand allowed accordingly. There shall be no order as to costs.

Miscellaneous applications pending, if any, shall stand closed.