The assessee is an individual who was subjected to search and seizure operations under Section 132 of the Income Tax Act, 1961. The issue involved is the challenge against the orders of the Principal Commissioner of Income Tax, which required the assessee to deposit 40% of the outstanding tax demand as a precondition for considering the stay application. 

The revenue contended that the assessee had not deposited even 20% of the outstanding demand, which was a prerequisite for considering the stay application. That the additions made in the assessment order were based on credible evidence collected during a search operation. Moreover, that mere filing of an appeal before the CIT(A) was not sufficient ground for granting a stay.

The assessee contended that the assessment orders were arbitrary and unsustainable, particularly considering the Supreme Court’s judgment in Principal Commissioner of Income Tax, Central v. Abhisar Buildwell Private Limited. The additions were based on documents and statements not gathered during the search, making them untenable. The authorities failed to consider the prima facie merits of the case and the undue hardship caused by the demand.  And that the assessee had offered to pledge properties to guarantee the outstanding demand to the extent of 20%.

The Hon’ble High Court held that the authorities erred in assuming that a 20% pre-deposit was mandatory for entertaining stay applications. The Principal Commissioner of Income Tax (Central) further erred by requiring a 40% deposit without evaluating the prima facie merits of the case. Quashing the Orders, the Hon’ble High Court remitted the matter to the Assessing Officer for fresh examination, considering the legal position as enunciated in the case of NASSCOM v. Deputy Commissioner of Income Tax (Exemption) Circle 2(1), New Delhi & Ors, and necessitating evaluation of merits of the case to decide on the stay application. (AY.2010-11 to 2020-21)