Facts of the Case

The petitioner, Jindal Stainless Ltd, challenged the action of the Income Tax Department in adjusting refunds due for Assessment Year (AY) 2022–23 against outstanding demands relating to AYs 2011–12, 2012–13, and 2014–15.

  • The department adjusted ₹40.09 crore from the refund.
  • The refund due was ₹52.78 crore, but only a portion was released.
  • The petitioner claimed that ₹32.07 crore (excess over 20%) was unlawfully retained.
  • Appeals against the disputed demands were pending before CIT(A).

The petitioner contended that the adjustment violated CBDT Office Memorandums and statutory provisions.

Issues Involved

  1. Whether the Revenue can adjust refunds exceeding 20% of disputed demand when appeals are pending.
  2. Whether adjustment under Section 245 without a formal order and proper opportunity is valid.
  3. Whether mere intimation satisfies the legal requirement of due process.

Petitioner’s Arguments

  • Adjustment exceeded the 20% cap prescribed under CBDT Office Memorandums dated 29.02.2016 & 31.07.2017.
  • No proper order was passed under Section 245, only an intimation.
  • Appeals were pending before CIT(A), hence coercive recovery was unjustified.
  • No opportunity of hearing was effectively granted.
  • Relied on:
    • Glaxo Smith Kline Asia (P.) Ltd vs CIT
    • CIT vs Glaxo SmithKline Asia (P) Ltd
    • Jindal Steel and Power Ltd vs PCIT
    • Hindustan Unilever Ltd vs DCIT

Respondent’s Arguments

  • The petitioner should have filed an application under Section 220 for stay of demand.
  • The adjustment was carried out as per statutory powers.
  • Facts were not disputed, but procedural compliance was defended.

Court’s Findings / Order

The Court held:

  • The action of the Assessing Officer was hasty and contrary to law.
  • As per CBDT guidelines:
    • Only 20% of disputed demand can ordinarily be adjusted when appeal is pending.
    • Higher adjustment requires recorded reasons and justification.
  • No material was produced to justify deviation from the 20% rule.
  • Adjustment without proper order under Section 245 violated principles of natural justice.

Final Direction:

  • The Revenue was directed to:
    • Refund excess amount beyond 20%, along with applicable interest.
    • Complete the process within 4 weeks.

Important Clarifications

  • Section 245 mandates:
    • Prior intimation
    • Opportunity to respond
    • Reasoned order before adjustment
  • CBDT OMs are binding on tax authorities.
  • Mere intimation ≠ valid legal compliance.
  • Pending appeal is a crucial factor limiting recovery.

Sections Involved

  • Section 245 – Adjustment of Refund
  • Section 220 – Payment of Tax Demand
  • Section 221 – Penalty for Default
  • CBDT Office Memorandum dated 29.02.2016 (amended 31.07.2017)

Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/RAS07082023CW92922023_170340.pdf

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