Court upholds the procedural aspect of section 245 of the Income Tax Act: Delhi High Court

It is the duty of the income tax authority to be governed by the mechanics of the Income Tax Act, 1961. A parallel situation was observed in the recent matter of Religare Finvest Ltd. v. Deputy Commissioner of Income Tax [W.P. (C) 10145/2021 & CM APPL. 31296/2021] in the Delhi High Court. The final proceeding of the above case was held on September 14th, 2021, and it was taken up by a division bench, consisting of Justice Manmohan and Justice Navin Chawla.

The facts, entailing the suit, are as follows. The matter had been filed in lieu for seeking Income Tax refund, inclusive of interest, adjusted in excess of 20% of the disputed tax demand arising in the case of the Petitioner for the assessment years 2016-17 and 2017-18 against the refunds due for the Assessments Years 2018-19 and 2019-20 along with the applicable interest.

The counsel, on the behalf of the petitioners, states that as per section 220 (6) of the Income Tax Act, the Assessing Officer is ordained with the power to grant stay on recovery of outstanding tax demand subject to fulfillment of appropriate conditions. It was also stated that in order to provide guidance and lay down principles regarding stay of demand, the Central Board of Direct Taxes has issued various Circulars/ Notification from time to time including Office Memorandums.

The counsel, on the behalf of petitioners, also stated that upon payment/ recovery of the standard rate of 20% of the disputed outstanding tax demand, the assessing officer is mandated to grant stay on recovery of the balance disputed outstanding tax demand till disposal of first appeal of the assessee, unless the case of the assessee falls in the specific category, enshrined under the aforesaid memorandums.

The counsel, to buttress the claims, also held reliance upon Eko India Financial Services Pvt Ltd vs. ACIT, [WP (C) No.5819/2021]. The case also entailed the same facts, and as a result, in the case, the respondents were directed to refund the amounts collected in excess 20% of the disputed outstanding taxes to the petitioners.

The court, on hearing both the sides, came to a conclusion, and made a observation that the outstanding demand by the Authority has not been duly collected through the procedure prescribed under 245 of the Income Tax Act. Further, to add upon the same, the court also said that “no notice or opportunity of predecisional hearing had been provided to the petitioner prior to such adjustment of refund, this Court is of the opinion that the petitioner is entitled to refund of adjustments made in excess of 20% of the disputed tax demands”.

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Judgement Review by Lakshya Sharma

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