Refund cannot be adjusted while appeal to earlier challenge to assessment is pending: Delhi High Court

The Delhi High Court held that refund cannot be adjusted while an appeal to an earlier challenge to assessment is pending through a division bench of Justices Manmohan and Manmeet Pritam Singh Arora in the case of Kshiprajatana v. Asst. Commissioner of Income Tax Circle 61(3) (W.P.(C) 7290/2022 & CM APPLs.22355-22356/2022)


The current writ case was seeking a refund of Rs.1,52,240/-, which was recovered in excess of 10% of the total contested tax demand for the Assessment Year 2017-18, against reimbursements due for the Assessment Year 2020-21.

According to learned counsel for the Petitioner, Rs.1,52,240/- in excess of 10% of the disputed demand was recovered on September 7, 2021 from refunds determined by the Respondents under Section 143(1) of the Income Tax Act, 1961 for the Assessment Year 2020-21, despite a stay order dated March 11, 2020 in favor of the Petitioner, whereby PCIT-21 had granted stay of the demand until the disposal of the first appeal or September 30, 2020, whichever was later. He claims that the petitioner filed an application with the defendants on January 31, 2022, seeking an extension of the stay of demand issued in an order dated March 11, 2020, and requesting that no coercive measures be taken to recover the demand until the appeal is resolved. He does, however, clarify that the application is still pending.

Learned counsel of the petitioner further draws attention to the fact that no notification required by Section 245 of the Act — which must be given before altering any return owed to the petitioner — has been given to the petitioner. As the petitioner had not been given a chance to be heard before the adjustment, he claims that it has been imposed in breach of the natural justice principle.

On instruction, Mr. Kunal Sharma, learned counsel for the Respondents-Revenue, states that an adjustment order under Section 245 of the Act was issued on January 28, 2022. He goes on to say that because the stay order dated March 11, 2020 was limited in time, the respondent was perfectly within its rights to amend the refund.


This Court held that the Respondents’ restrictive stay order dated 11th March, 2020, granting stay to the petitioner only until 30th September, 2020, violated the CBDT’s directions as well as previous orders of this Court, which held that the Assessing Officer must grant stay until the first appeal is decided.

Furthermore, given that the adjustments were made on September 7, 2021, prior to the issuance of a set-off of refund order dated January 28, 2022 under Section 245, this Court believes that the Petitioner is entitled to a refund of any adjustments made in excess of 10% of the total disputed tax demand. The Court ordered the respondents to reimburse the petitioner within four weeks, along with statutory interest, for the sum adjusted over 10% of the contested tax claims for the Assessment Year 2017–18.  

Thus, the writ petition and applications were dismissed with the aforementioned directive.

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