Facts of the Case

The present writ petition was filed seeking refund of ₹1,52,240/- which had been recovered in excess of 10% of the total disputed tax demand for Assessment Year 2017–18 by adjusting refunds due for Assessment Year 2020–21.

The petitioner contended that the recovery was made despite an existing stay order dated 11 March 2020, which granted protection against coercive recovery measures until disposal of the first appeal or a specified date.

It was further submitted that the petitioner had already filed an application seeking extension of the stay, which remained pending. Additionally, the adjustment was carried out without issuing a mandatory notice under Section 245 of the Income Tax Act.

Issues Involved

  1. Whether the Revenue can recover tax in excess of 10% of the disputed demand during the pendency of appeal.
  2. Whether adjustment of refund without issuing notice under Section 245 violates principles of natural justice.
  3. Whether a time-bound stay order contrary to CBDT guidelines is legally sustainable.

Petitioner’s Arguments

  • The recovery of amount exceeding 10% of disputed tax demand is illegal and contrary to CBDT instructions.
  • No notice under Section 245 was issued prior to adjustment of refund, making the action void.
  • The adjustment was made in violation of principles of natural justice due to absence of opportunity of hearing.
  • The stay granted earlier ought to have continued till disposal of the first appeal 

Respondent’s Arguments

  • The Revenue contended that an adjustment order under Section 245 had been passed on 28 January 2022.
  • It was argued that the stay order dated 11 March 2020 was time-bound and had expired, thereby allowing recovery.
  • The respondents claimed that they were within their legal rights to adjust the refund.

Court’s Findings

  • The Court held that limiting the stay only up to a specific date (30 September 2020) was contrary to CBDT directions and judicial precedents, which require stay to continue till disposal of the first appeal.
  • The adjustment of refund was made prior to issuance of the Section 245 order, rendering the action procedurally defective.
  • The Court emphasized that recovery beyond 10% of disputed demand is impermissible during pendency of appeal.
  • Failure to comply with mandatory requirement of Section 245 notice violated principles of natural justice.

Court Order / Final Decision

The Delhi High Court directed the respondents to refund the amount recovered in excess of 10% of the disputed tax demand for Assessment Year 2017–18 within four weeks along with applicable statutory interest.

The writ petition was accordingly disposed of.

Important Clarifications

  • Stay of demand should ordinarily continue till disposal of first appeal and not be restricted arbitrarily.
  • Recovery exceeding 10% of disputed demand is not permissible unless justified by exceptional circumstances.
  • Issuance of notice under Section 245 is mandatory before adjustment of refunds.
  • Any adjustment made without following due process violates principles of natural justice.

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2022:DHC:1997-DB/MMH20052022CW72902022_190434.pdfTop of Form

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