Facts of the Case

  • The petitioner sought refund of ₹1,83,91,108/-, which was recovered in excess of 20% of disputed tax demand for AY 2016-17.
  • The excess recovery was made by adjusting refunds of subsequent assessment years (2017-18, 2018-19, 2019-20).
  • The petitioner had already deposited the standard 20% of disputed demand, which should have triggered a stay on further recovery.
  • However, the department recovered approximately 35% of the demand.
  • A restrictive stay order was passed limiting relief only up to a specific date instead of till disposal of appeal.

Issues Involved

  1. Whether tax authorities can recover more than 20% of disputed demand during pendency of first appeal?
  2. Whether adjustment of refunds under Section 245 without proper reasoning violates CBDT instructions?
  3. Whether stay of demand must continue till disposal of appeal once 20% is paid?

Petitioner’s Arguments

  • As per Section 220(6) and CBDT circulars, payment of 20% mandates stay on recovery of balance demand.
  • Recovery beyond 20% is permissible only in exceptional cases under para 4(B) with recorded reasons.
  • Respondents illegally adjusted refunds exceeding permissible limits.
  • Stay should continue till disposal of first appeal, not be time-restricted.

Respondent’s Arguments

  • The department contended that it was merely adjusting refunds against outstanding demand, not effecting coercive recovery.

Court Findings / Order

  • The issue is no longer res integra, relying on Skyline Engineering Contracts (India) Pvt. Ltd. vs DCIT.
  • CBDT memorandums clearly mandate:
    • Stay must be granted upon payment of 20%, unless exceptional reasons exist.
  • The Court held:
    • No justification was provided for recovery exceeding 20%.
    • Adjustment under Section 245 without reasoning is invalid.
  • Direction issued:
    • Refund excess amount recovered beyond 20% within four weeks.

Important Clarification by Court

  • Recovery beyond 20% is not automatic and requires:
    • Specific reasoning
    • Falling within exceptions under CBDT guidelines
  • Stay orders must remain effective till disposal of first appeal.
  • Adjustment of refunds cannot bypass safeguards of Section 220(6) and CBDT circulars.

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2022:DHC:317-DB/MMH25012022CW14752022_213355.pdf

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