Facts of the Case

The petitioner, M/s FIS Payment Solutions & Services India Pvt. Ltd., filed a writ petition seeking release of a refund amounting to ₹62.14 crores under Section 143(1) of the Income-tax Act, 1961 for Assessment Year 2017–18.

An assessment order dated 30.12.2019 created a demand of ₹36.69 crores. The revenue authorities adjusted the demand against prepaid taxes and refunded only a partial amount, retaining a significant portion.

The petitioner challenged this adjustment, especially since the assessment order was already under appeal before the Commissioner of Income Tax (Appeals) [CIT(A)].

Issues Involved

  1. Whether the Revenue was justified in adjusting the entire demand against the refund despite pendency of appeal before CIT(A).
  2. Whether the Assessing Officer (AO) was obligated to grant stay of demand as per CBDT Office Memorandums.
  3. Whether the petitioner was entitled to refund exceeding 20% of the disputed demand.

Petitioner’s Arguments

  • The petitioner contended that the Revenue violated CBDT Office Memorandums dated 29.02.2016 and 31.07.2017.
  • As per these circulars, only 20% of the disputed demand can be retained when an appeal is pending before CIT(A).
  • The entire adjustment of demand was arbitrary and contrary to binding administrative instructions.
  • The petitioner also challenged additions made in assessment, including:
    • Disallowance of ESOP expenses
    • Addition relating to sundry creditors
    • Disallowance of employees’ PF contribution

Respondent’s Arguments

  • The Revenue argued that the demand was validly raised through the assessment order.
  • It was submitted that the adjusted amount was in accordance with tax computation and included interest components.
  • The refund had already been partially released after adjustment.

Court’s Findings / Order

  • The Court held that CBDT Office Memorandums are binding on tax authorities.
  • It clarified that when an appeal is pending before CIT(A), the AO must grant stay of demand upon retention of only 20% of the disputed amount.
  • Since the Revenue already held amounts exceeding 20%, the excess retention was unjustified.
  • The Court directed:
    1. Stay of the entire outstanding demand.
    2. Release of refund exceeding 20% of the disputed demand.

Important Clarification by Court

  • Filing of an appeal triggers protection under CBDT guidelines.
  • The AO has a mandatory obligation to grant stay when prescribed conditions are fulfilled.
  • Refund adjustment cannot exceed permissible limits under administrative instructions.

Sections Involved

  • Section 143(1) – Processing of return and refund
  • Section 245 – Set-off of refunds against tax demand
  • CBDT Instruction No. 1914
  • CBDT Office Memorandum dated 29.02.2016
  • CBDT Office Memorandum dated 31.07.2017

Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/RAS24112023CW21622020_115412.pdf

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