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Refund can be adjusted against outstanding tax demand by the Authority without invoking Section 245 of the Income Tax Act, 1961: High Court of Delhi

If no notice or opportunity of pre-decisional hearing has been provided to a party prior to adjustment of refund, then a refund can be adjusted against outstanding tax demand by the Authority without invoking Section 245 of the Income Tax Act, 1961 or without following the due procedure prescribed under the said Section. These were stated by Justice Manmohan in the case of M/S Ramesh Constructions Pvt. Ltd. vs. Deputy Commissioner of Income Tax Circle–19 (1) Delhi & Ors. [W.P.(C) 14536/2021] on 05.01.2022.

The facts of the case are that a writ petition was filed seeking a refund of Rs.1,66,35,954/- which was recovered in excess of 20% of the total disputed tax demand for the Assessment Year 2013-14 against the refunds due for various Assessment Years. Petitioner wants the Respondents to hear and dispose of the appeal filed against the order under Section 143(3) of the Income Tax Act, 1961. It was stated by the petitioner that under Section 220(6) of the Income Tax Act, 1961, the Assessing Officer has been conferred with the power to grant a stay on recovery of outstanding tax demand subject to fulfillment of appropriate conditions.

The learned Counsel for the petitioner submitted that upon payment/recovery of the standard rate of 20% of the disputed outstanding tax demand, the assessing officer is mandated to grant a stay on recovery of the balance disputed outstanding tax demand till the disposal of first appeal of the assessee, unless the case of the assessee falls in the category mentioned in paragraph (B) of the Office Memorandums dated 29 July, 2017, prescribing that in cases where an assessee challenges the additions/ disallowances made in the assessment order by way of an appeal before the first appellate authority, i.e., CIT(A), and during pendency thereof deposits 20% of the total disputed outstanding tax demand, the assessing officer is empowered to grant stay of recovery of the balance outstanding demand. He stated that the Respondents in violation of the provisions of the Office Memorandums recovered the disputed outstanding tax demand in excess of 20% by way of adjustment of refunds due for subsequent assessment years.

The learned counsel for respondents stated that according to the instructions from the Assessing Officer as per system, there is no provision for refund of excess amount (20% of outstanding demand) to be recovered, but the same can be refunded through manual refund in light of ITBA assessment instruction no.11 on the direction of Hon’ble Court.

The High Court of Delhi held that the present writ petition was no longer res integra. The Court by keeping in view the aforesaid mandate of law as well as the fact that refunds have been adjusted against outstanding tax demand by the Authority without invoking Section 245 of the Act and/or without following the due procedure prescribed under the said Section inasmuch as no notice or opportunity of pre-decisional hearing had been provided to the petitioner prior to such adjustment of refund, the Court was of the opinion that the petitioner was entitled to refund of adjustments made in excess of 20% of the disputed tax demands. Consequently, the Court directed the respondents to verify the facts stated in the writ petition and if it finds them to be true and correct then refund amount should be adjusted in excess of 20% of the disputed tax demands for the Assessment Year 2013-14 to the petitioner within four weeks. With the aforesaid direction, the present writ petition and application stood disposed of.

Judgment reviewed by Shristi Suman. Judgment

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