The Allahabad High Court has dismissed a department’s appeal challenging the Income Tax Appellate Tribunal’s decision to continue a stay on outstanding tax demand beyond the aggregate period of 365 days, holding that the statutory outer limit under Section 254(2A) of the Income-tax Act, 1961, is not absolute where the delay in disposal of the assessee’s appeal is not attributable to the assessee.
The Bench of Justice Saumitra Dayal Singh and Justice Swarupama Chaturvedi held that, in view of the Supreme Court’s ruling in Deputy Commissioner of Income Tax & Another v. Pepsi Foods Limited, the 365-day limitation contemplated under the third proviso to Section 254(2A) cannot operate as an inflexible bar in circumstances where the assessee is not responsible for the delay in adjudication of its appeal.
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The dispute arose from an interim order passed by the Delhi Bench of the Income Tax Appellate Tribunal on December 19, 2025, in a stay application connected with the assessee’s pending income-tax appeal for Assessment Year 2017-18.
The Tribunal had granted a stay of the disputed demand for 180 days or until disposal of the appeal, whichever was earlier. The Revenue subsequently approached the Allahabad High Court by way of an intra-Court appeal, questioning the legality of continuation of the stay beyond the aggregate statutory period of 365 days.
The Revenue raised two substantial questions of law before the High Court. The first concerned whether the ITAT was legally justified in extending the stay beyond 365 days in alleged violation of the third proviso to Section 254(2A). The second questioned whether the Tribunal could grant a further unconditional extension of the stay without complying with the conditions prescribed under the statutory provision.
Appearing for the assessee, counsel relied upon the Supreme Court’s judgment in Deputy Commissioner of Income Tax and Another v. Pepsi Foods Limited, reported in (2021) 7 SCC 413.
The Supreme Court had read down the relevant provision of Section 254(2A), holding that the 365-day period contemplated by Parliament as the outer limit for an interim stay granted by the Tribunal is not mandatory or absolute in every situation.
The limitation would apply where the Tribunal finds that the delay in disposal of the appeal beyond the 365-day period is attributable to the conduct of the assessee. Thus, the statutory provision cannot be interpreted to penalise an assessee for delay that is not of its own making.
The High Court noted that, in the case before it, it had specifically been stated that the delay in disposal of the appeal was not attributable to the assessee.
The Bench found this position to be supported by the procedural history itself. The initial stay had been granted for 180 days and was subsequently extended twice. Significantly, the Revenue had not raised any objection before the Tribunal that the proceedings were being delayed because of the assessee’s conduct.
The absence of any material showing that the assessee was responsible for prolonging the appeal proceedings therefore became crucial to the Court’s consideration of the Revenue’s challenge.
The Court accepted the legal position emerging from Pepsi Foods that the 365-day ceiling cannot be mechanically applied where the assessee has not contributed to the delay.
This means that the mere expiry of 365 days does not, by itself, necessarily extinguish the Tribunal’s ability to protect an assessee from recovery where the appeal remains pending for reasons unrelated to the assessee’s conduct.
After examining the circumstances and the Supreme Court precedent relied upon by the assessee, the Division Bench concluded that the department’s challenge did not raise any substantial question of law warranting interference.
The High Court accordingly dismissed the appeal.
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