Facts of the Case

The petitioner, Goel Road Carriers Private Limited, filed a writ petition seeking refund of ₹57,65,410/- which had been recovered by the Income Tax Department in excess of 20% of the disputed tax demand for Assessment Year 2012–13. The excess recovery was made by adjusting refunds due for Assessment Year 2020–21.

The petitioner contended that only 20% of the disputed demand could be recovered during the pendency of appeal, yet approximately 51% of the demand was adjusted by the department without proper adjudication of the stay application.

Issues Involved

  1. Whether the Income Tax Department can recover more than 20% of the disputed tax demand during pendency of appeal.
  2. Whether adjustment of refunds under Section 245 without proper notice and hearing is valid.
  3. Whether CBDT Office Memorandums are binding on tax authorities in matters of stay of demand.

Petitioner’s Arguments

  • Under Section 220(6) and CBDT Office Memorandums, recovery should be limited to 20% of disputed demand.
  • The department unlawfully adjusted refunds exceeding this limit without deciding the stay application.
  • The adjustment violated procedural safeguards as no proper opportunity of hearing was granted before invoking Section 245.
  • The excess recovery was arbitrary and contrary to binding administrative instructions.

Respondent’s Arguments

  • The department referred to an intimation issued under Section 245 of the Income Tax Act.
  • It was argued that adjustments were made as per statutory provisions.
  • However, the petitioner clarified that the Section 245 intimation was only for ₹30,000/- relating to penalty, not the substantial adjustment made.

Court’s Findings / Order

  • The Court held that the issue is no longer res integra and relied on Skyline Engineering Contracts (India) Pvt. Ltd. v. DCIT.
  • It reiterated that:
    • Recovery should ordinarily be restricted to 20% of the disputed demand during pendency of appeal.
    • Any deviation must be supported by specific reasons as per CBDT guidelines.
  • The Court found:
    • No justification was provided for recovery beyond 20%.
    • Adjustment of refund was made without proper notice or opportunity of hearing, violating procedural fairness.

Final Directions

  • Refund of amount recovered in excess of 20% of disputed demand to be made within four weeks.
  • Refund of ₹30,000/- adjusted under Section 245 also directed.
  • Appellate Authority directed to decide the pending appeal within one year.

Sections Involved

  • Section 144 – Best Judgment Assessment
  • Section 220(6) – Stay of Demand
  • Section 245 – Adjustment of Refunds
  • Section 271B – Penalty (contextual reference)
  • CBDT Office Memorandums dated 29.02.2016 & 31.07.2017

Important Clarifications

  • CBDT Office Memorandums are binding on tax authorities.
  • Recovery beyond 20% is permissible only in exceptional cases with recorded reasons.
  • Adjustment under Section 245 requires prior notice and opportunity of hearing.
  • Arbitrary recovery violates principles of natural justice.

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2022:DHC:1696-DB/MMH02052022CW68852022_184028.pdf

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