Facts of the Case

The Petitioner, M/s Essjay Ericsson Private Limited, filed a writ petition seeking refund of ₹6,05,46,907/- which had been recovered by the Revenue authorities in excess of 20% of the disputed tax demand for Assessment Year 2016-17. The excess recovery was made by adjusting refunds due for subsequent assessment years without granting prior notice or opportunity of hearing.

The Petitioner had already deposited/recovered more than the prescribed 20% threshold, yet the Respondents continued recovery actions and failed to decide the stay application pending before the CIT(A).

Issues Involved

Whether the Revenue can recover tax demand exceeding 20% during pendency of appeal without justification.

Whether adjustment of refunds under Section 245 without prior notice violates principles of natural justice.

Whether non-disposal of stay application by CIT(A) justifies continued recovery by the Department.

Petitioner’s Arguments

As per Section 220(6) and CBDT circulars, once 20% of disputed demand is paid, recovery of balance demand should be stayed.

The Revenue illegally adjusted refunds far exceeding 20% (approx. 80.26%) of disputed demand.

No notice or pre-decisional hearing was provided before adjustment under Section 245.

The stay application filed before CIT(A) remained undecided despite court directions.

Respondent’s Arguments

The Revenue contended that the Petitioner had not voluntarily deposited 20% of the tax demand.

It was implied that recovery actions were justified under the circumstances of the case.

Court Findings / Judgment

The Court held that recovery beyond 20% of disputed demand is impermissible unless justified under exceptional circumstances.

The CBDT Office Memorandum mandates that normally only 20% of disputed demand can be recovered during pendency of appeal.

Any deviation requires specific reasons, which were absent in the present case.

Adjustment of refunds without notice violates Section 245 and principles of natural justice.

The issue is no longer res integra and is covered by prior judgments including Skyline Engineering Contracts (India) Pvt. Ltd. case.

Court Order

The Respondents were directed to verify the facts and refund the excess amount recovered beyond 20% of disputed tax demand.

The refund was ordered to be processed within six weeks.

The writ petition was disposed of with directions.

Important Clarifications

Recovery beyond 20% is not automatic and must be supported by reasons under CBDT guidelines.

Section 245 mandates prior notice and opportunity before adjustment of refunds.

Non-disposal of stay application cannot justify excessive recovery.

Government authorities are bound by their own circulars and policies.

Relevant Sections Involved

Section 143(3), Income Tax Act, 1961

Section 220(6), Income Tax Act, 1961

Section 245, Income Tax Act, 1961

CBDT Office Memorandum dated 29.02.2016 & 31.07.2017

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2021:DHC:4402-DB/MMH24122021CW149372021_212426.pdf

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