Kerala HC directed CIT(A) to decide appeal on merits without asking for deposit of 20% of tax demand

In an important judgement, the Kerala HC directed CIT(A) to decide appeal on merits without asking for deposit of 20% of tax demand in the matter of Aranattukara Oriental Service Co-Operative Bank Ltd. v. CIT – [2020] 116 taxmann.com 900 (Kerala).

The CBDT vide its Office Memorandum dated 31.07.2017 made a partial modification of Instruction No. 1914 dated 21.3.1996 to provide for guidelines for stay of demand at the first appeal stage and raised the amount of disputed tax amount to be deposited from 15% to 20% before granting of stay of demand at the first appeal level { i.e. CIT (A)}.

In the instant case, the Petitioner was a primary Co-operative Agricultural Credit Society registered under the Kerala Co-operative Societies Act. It approached Kerala High Court that neither the appeal nor stay petition had been considered by the CIT(Appeals). Assessee relied on the upon the judgment of the Division Bench of High Court, dated 31.5.2019 W.P.(C)12843/19. The Division Bench after noticing the decision of the Full Bench and connected cases decided that for considering the appeal, the demand of 20% tax as a condition precedent, was negated.

The CIT(A) submitted that the appellate authorities was required to ask for deposit 20% of the tax amount to entertain the appeal, in consonance with the provisions of Section 144 of the Income Tax Act and the Circular dated 31.7.2017.

The High Court held that the Assessing Officer or the Appellate Authority while exercising the power of appeal or stay of the assessment proceedings, are enjoined obligation to give regard and respect to the directions of the Hon'ble High Court. In other words, it would not be necessary that the payment of 20% could be dispensed with only if there was an order of the High Court. Therefore, CIT(A) was directed to decide the appeal without asking for 20% of the demanded amount, after affording an opportunity of hearing to the petitioner.The judgment of the Full Bench followed by the Division Bench has an enduring effect on all the authorities.