Facts of the Case

The petitioner, Infres Methodex Private Limited, had refunds due for Assessment Years 2021–22 and 2022–23 amounting to ₹1,72,02,960/-. However, the Revenue adjusted this refund against an outstanding demand for AY 2017–18 amounting to ₹2,52,59,189/-.

  • The adjustment was made without following the statutory procedure under Section 245 of the Act.
  • An appeal against the assessment order for AY 2017–18 was already pending since 20.01.2020.
  • A stay application dated 29.01.2020 (filed on 03.02.2020) had not been adjudicated.

Issues Involved

  1. Whether the Revenue can adjust refunds without complying with Section 245 of the Income Tax Act, 1961.
  2. Whether non-disposal of a stay application and pending appeal justifies such adjustment.
  3. To what extent adjustment of refund can be permitted during pendency of dispute.

Petitioner’s Arguments

  • The Revenue acted in violation of Section 245 by adjusting refunds without prior intimation and opportunity.
  • The demand for AY 2017–18 is under challenge and not final.
  • The stay application has remained undecided for an unreasonable period.
  • Adjustment of refund without deciding the stay application is arbitrary and unjust.

Respondent’s Arguments

  • The Revenue relied on the existing demand and proceeded based on available records.
  • No counter-affidavit was filed; arguments were advanced on the basis of records before the Court.

Court’s Findings / Order

  • Considering the pending appeal and undecided stay application, full adjustment of refund was not appropriate.
  • The Court permitted partial adjustment limited to 20% of the outstanding demand for AY 2017–18.
  • The concerned authority was directed to:
    • Pass an appropriate order keeping this limitation in mind.
    • Dispose of the stay application within three weeks from receipt of the judgment.
  • The petitioner was granted liberty to seek further remedies depending on the outcome of the stay application.

Important Clarifications

  • Adjustment under Section 245 must follow due process and cannot be exercised arbitrarily.
  • Pending appeals and stay applications significantly impact the enforceability of tax demands.
  • Courts may allow limited recovery (generally 20%) in line with administrative guidelines to balance interests of revenue and taxpayer.

Authorities are obligated to dispose of stay applications expeditiously.

Sections Involved

  • Section 245 of the Income Tax Act, 1961 (Adjustment of Refunds)
  • Provisions relating to Stay of Demand (Administrative Instructions / CBDT Guidelines)

Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/60822052023CW68822023_151432.pdf

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