ITO Cannot Demand 20% Deposit for Stay when High Court already ruled in Favour of Taxpayer on Same Issue

The Delhi High Court’s Division Bench consists of Justice Dinesh Mehta and Justice Vinod Kumar In the Case of Cadence Design Systems India Pvt. Ltd, it gave a clear win. Cadence had filed two writ petitions under Articles 226 and 227 of the Constitution, pushing back against the Principal Commissioner of Income Tax (PCIT), Delhi-1. The issue is the PCIT basically said no to the company’s request for a complete stay on tax demands for Assessment Years 2020-21 and 2021-22.

Everything started when the Assessing Officer refused to allow the Employee Stock Option Plan (ESOP) expenses that Cadence claimed, leading to hefty tax bills. Cadence tried for a stay under Section 220(6) of the Income Tax Act, leaning heavily on an earlier Delhi High Court judgement, Principal Commissioner of Income Tax, Delhi v. Lemon Tree Hotels Pvt. Ltd which had already settled the ESOP deductibility in favour of taxpayers. But, even with that precedent, the authorities told Cadence to cough up 20% of the disputed amount before they’d hold off on the rest. That’s what drove Cadence to file these writ petitions.

In court, Cadence’s senior counsel argued that this demand for a 20% deposit just didn’t line up with CBDT Circulars from 2016 and 2017. The point was simple: when the High Court has already ruled in the taxpayer’s favour, demands like 20% deposits should be cut or dropped altogether because those judgements bind every authority under its jurisdiction. The Revenue countered that the Circular merely lets authorities lower the deposit it doesn’t mean they have to grant a blanket stay. Plus, they pointed out that the Supreme Court was still handling a related case of Commissioner of Income Tax-V v. M/s New Delhi Television Ltd.

The High Court was not convinced. They shot down the Revenue’s reasoning, saying that authorities should not just robotically insist on 20 percent of deposits, especially when the High Court has already decided the legal issue. The judges made it clear a binding precedent means the decision-maker handling a Section 220(6) stay application should usually grant a complete stay. So, they tossed the orders that required Cadence to pay 20%; gave a full stay on recovery until appeals played out; and told the Assessing Officer to update the ITBA Portal. This decision sends a strong message: tax officials can not simply ignore High Court judgements when deciding on stays.