Facts of the Case

The petitioner, Skyline Engineering Contracts (India) Pvt. Ltd., challenged the action of the Income Tax Department in recovering an amount significantly exceeding 20% of the disputed tax demand for Assessment Year 2015–16, despite the appeal being pending before the Commissioner of Income Tax (Appeals).

The total demand raised was ₹3,37,95,120, out of which ₹2,92,09,436 (approximately 86.43%) had already been recovered.

The petitioner contended that such recovery violated CBDT guidelines which prescribe that only 20% of the disputed demand should be recovered when an appeal is pending.

Issues Involved

  1. Whether the Revenue authorities can recover more than 20% of the disputed demand during pendency of appeal before CIT(A)?
  2. Whether CBDT Office Memorandums dated 29.02.2016 and 25.08.2017 are binding on the Assessing Officer?
  3. Whether recovery beyond 20% without recorded reasons is valid under law?

Petitioner’s Arguments

  • The petitioner argued that CBDT guidelines mandate stay of demand upon payment of 20% of the disputed amount.
  • Recovery of 86.43% was arbitrary and contrary to binding instructions.
  • No justification or reasons were provided by the Assessing Officer for exceeding the 20% threshold.
  • The action violated principles of fairness and administrative discipline.

Respondent’s Arguments

  • The Revenue contended that 20% is not an absolute rule and higher recovery may be justified in certain cases.
  • It relied on Clause 4(B) of the CBDT Office Memorandum allowing discretion for higher recovery.
  • The Assessing Officer had also directed that no further recovery be made and requested expeditious disposal of appeal.

Court’s Findings

  • The Court held that CBDT instructions are binding on the Revenue authorities.
  • Recovery beyond 20% is permissible only if justified with reasons under Clause 4(B).
  • In the present case:
    • No order under Section 245 for adjustment was passed.
    • No reasons were recorded for exceeding 20%.

The Court emphasized that government authorities must adhere to their own policies and standards, failing which their actions are liable to be invalidated.

Court Orde

  • The Delhi High Court directed the Revenue to refund the amount recovered in excess of 20% of the disputed demand for AY 2015–16 and 2016–17 within four weeks.
  • The writ petitions were disposed of accordingly.

Important Clarification

  • 20% pre-deposit is the standard rule during pendency of appeal.
  • Higher recovery is an exception, not the norm.
  • Such exception requires:
    • Specific reasons
    • Compliance with Clause 4(B) procedure
  • Absence of justification renders excess recovery unlawful.

Sections Involved

  • Section 143(3), Income Tax Act, 1961 (Assessment)
  • Section 245, Income Tax Act, 1961 (Set-off of refunds)
  • CBDT Office Memorandums dated:
    • 29 February 2016
    • 25 August 2017

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2021:DHC:2559-DB/MMH23082021CW61722021_133104.pdf

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