Facts of the Case

The petitioner, Interactive BPO Services Pvt. Ltd., filed a writ petition seeking refund of ₹54,45,128/- which had been adjusted by the Income Tax Department. The adjustment was made against refunds due for Assessment Years 2019–20 and 2020–21, towards disputed tax demand for Assessment Year 2018–19.

The petitioner contended that the department recovered approximately 57% of the disputed demand instead of restricting recovery to 20%, as prescribed under CBDT guidelines. Further, such recovery was made without deciding the stay application and without following due process under Section 245 of the Act.

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 without prior notice under Section 245 is valid.
  3. Whether failure to decide stay application before recovery violates statutory and administrative guidelines.

Petitioner’s Arguments

  • Under Section 220(6), once an assessee deposits 20% of the disputed demand, recovery of the balance demand must be stayed during pendency of appeal.
  • CBDT Office Memorandums mandate that only 20% of disputed demand should be recovered unless exceptional reasons are recorded.
  • The respondents illegally adjusted 57% of the demand without justification.
  • No notice or opportunity of hearing was provided under Section 245 before adjustment of refunds.
  • The action of the department was arbitrary and contrary to binding circulars.

Respondent’s Arguments

  • The demand adjustment was made through the Centralized Processing Centre in routine processing.
  • The recovery was not directly initiated by the Assessing Officer.

Court’s Findings

  • The issue is no longer res integra and is covered by earlier judgments including Eko India Financial Services Pvt. Ltd. vs ACIT.
  • The CBDT Office Memorandums clearly provide that ordinarily only 20% of the disputed demand can be recovered during pendency of appeal.
  • Any recovery beyond 20% requires specific reasons demonstrating exceptional circumstances.
  • In the present case, no reasons were recorded for recovering more than 20%.
  • Adjustment of refunds without issuing notice under Section 245 and without granting an opportunity of hearing is violative of due process.

Court Order / Decision

  • The Court held that the petitioner is entitled to refund of the amount recovered in excess of 20% of the disputed tax demand.
  • The respondents were directed to verify the facts and refund the excess amount within four weeks.
  • The writ petition was disposed of with directions.

 Important Clarifications

  • Recovery of disputed tax demand during appeal is generally capped at 20% as per CBDT guidelines.
  • Recovery beyond 20% is permissible only with recorded reasons under exceptional circumstances.
  • Adjustment of refunds under Section 245 requires prior notice and opportunity of hearing.
  • Administrative circulars issued by CBDT are binding on tax authorities.

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2021:DHC:3906-DB/MMH01122021CW134982021_220507.pdf

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