Facts of the Case

  • The petitioner, Max Life Insurance Company Limited, faced a tax demand of approximately ₹221 crores for AY 2017–18.
  • The Revenue adjusted refunds from earlier years (AY 2013–14 and 2014–15) amounting to ₹86 crores.
  • This adjustment exceeded 20% of the total disputed demand, contrary to CBDT guidelines.
  • The petitioner had already filed an appeal before CIT(A), which was pending adjudication.
  • Despite this, further recovery actions were initiated by the Revenue. 

Issues Involved

  1. Whether the Revenue can recover/adjust amounts exceeding 20% of disputed tax demand during pendency of appeal.
  2. Whether adjustment of refunds against disputed demand without adherence to CBDT guidelines is arbitrary and illegal.
  3. Whether the petitioner is entitled to refund of excess recovered amount.

Petitioner’s Arguments

  • The recovery beyond 20% violates CBDT Office Memorandum dated 31.07.2017.
  • Adjustment of refunds from earlier assessment years is arbitrary and contrary to law.
  • Since the appeal is pending before CIT(A), coercive recovery should be stayed.
  • The Revenue acted in breach of principles of judicial discipline and reasonableness.

Respondent’s Arguments

  • The Revenue relied on recovery actions already undertaken through adjustment of refunds.
  • However, it did not dispute:
    • Pendency of appeal before CIT(A)
    • Applicability of the 20% recovery cap

Court Findings / Order

The Delhi High Court held:

  • Recovery by the Revenue cannot exceed 20% of the disputed demand as per CBDT guidelines.
  • The amount already recovered (₹86 crores) exceeded the permissible limit.
  • The Revenue was directed to:
    • Refund excess amount recovered beyond 20%
    • Include ₹12,68,20,270 wrongly adjusted
    • Pay applicable interest
  • Refund to be made within 6 weeks
  • CIT(A) directed to dispose of appeal expeditiously

Important Clarification

  • The Court reaffirmed that CBDT instructions are binding on tax authorities.
  • Even via refund adjustments, the 20% cap cannot be bypassed.
  • Recovery during appeal must remain reasonable, proportionate, and legally compliant.

Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/RAS04082023CW51762022_140102.pdf

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