Facts of the Case

The petitioner, M/s Ramesth Constructions Pvt. Ltd., filed a writ petition seeking refund of ₹1,66,35,954/- which had been recovered by the Income Tax Department in excess of 20% of the disputed tax demand for Assessment Year 2013–14.

The recovery was made through adjustment of refunds due for other assessment years. The petitioner also sought directions for expeditious disposal of its pending appeal against the assessment order passed under Section 143(3) of the Income Tax Act, 1961.

The petitioner contended that although 20% of the disputed demand amounted to ₹47,13,706/-, the department recovered approximately 90.58% of the demand by adjusting refunds.

Issues Involved

  1. Whether the Income Tax Department can recover more than 20% of the disputed tax demand during the pendency of appeal.
  2. Whether adjustment of refunds beyond 20% without following due process under Section 245 is valid.
  3. Whether the assessee is entitled to refund of excess recovery made in violation of CBDT guidelines.

Petitioner’s Arguments

  • Under Section 220(6), the Assessing Officer has discretion to grant stay on recovery of demand.
  • As per CBDT Office Memorandums dated 29.02.2016 and 31.07.2017, once 20% of disputed demand is paid, recovery of the balance demand should be stayed.
  • The Department violated these binding instructions by recovering far more than 20%.
  • No justification or reasons were recorded to exceed the prescribed 20% threshold.
  • Adjustment of refunds was done without complying with Section 245, i.e., without notice or opportunity of hearing.

Respondent’s Arguments

  • The Department acknowledged that excess recovery had been made.
  • It was submitted that there is no automatic system provision for refund of excess recovery, but refund can be granted manually upon court directions.

Court’s Findings / Order

  • The Court held that the issue is no longer res integra, relying on precedent in Skyline Engineering Contracts (India) Pvt. Ltd. vs DCIT.
  • It reiterated that:
    • Normally, only 20% of disputed demand can be recovered during pendency of appeal.
    • Any recovery beyond 20% must be supported by specific reasons under CBDT guidelines.
  • The Court found:
    • No reasons were recorded for recovery beyond 20%.
    • Adjustment of refunds was done without following Section 245 procedure, i.e., without notice or opportunity of hearing.

Final Direction

  • The Respondents were directed to:
    • Verify the facts, and
    • Refund the excess amount recovered beyond 20% within four weeks.

 Important Clarifications

  • CBDT instructions regarding 20% deposit are binding on tax authorities.
  • Recovery beyond 20% is permissible only in exceptional cases with recorded reasons.
  • Adjustment of refunds under Section 245 requires prior notice and opportunity of hearing.
  • Failure to follow due process renders recovery illegal and refundable.

Sections Involved

  • Section 220(6) – Stay of demand
  • Section 245 – Set-off of refunds against tax payable
  • Section 143(3) – Assessment
  • CBDT Office Memorandums dated 29.02.2016 & 31.07.2017

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2022:DHC:76-DB/MMH05012022CW145362021_182448.pdf

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