Facts of the Case

The petitioner, Religare Finvest Limited, filed writ petitions seeking refund of income tax amounts (including interest) that had been adjusted by the Income Tax Department in excess of 20% of the disputed tax demand.

The dispute related to Assessment Years 2016–17 and 2017–18, where the department adjusted refunds due for later years (2018–19 and 2019–20) against outstanding demands.

Additionally, the petitioner sought disposal of its rectification application filed under Section 154 regarding an assessment order dated 17 June 2020.

Issues Involved

  1. Whether the Income Tax Department can recover or adjust amounts exceeding 20% of disputed tax demand during pendency of appeal.
  2. Whether adjustment of refunds under Section 245 without prior notice violates statutory procedure.
  3. Whether the petitioner is entitled to refund of excess recovery beyond prescribed limits.

Petitioner’s Arguments

  • Under Section 220(6), once an assessee deposits 20% of disputed tax demand, recovery of the balance demand should be stayed.
  • CBDT Office Memorandums clearly prescribe that 20% is the standard threshold for granting stay.
  • The department unlawfully recovered amounts far exceeding 20% by adjusting refunds.
  • No justification or reasons were provided for exceeding the prescribed limit.
  • Reliance was placed on Eko India Financial Services Pvt. Ltd. vs ACIT, where similar relief was granted.

Respondent’s Arguments

  • The Revenue accepted notice but submitted that instructions had not yet been received at the time of hearing.

Court Findings / Order

  • The Court held that the issue is no longer res integra, relying on earlier precedent.
  • It reiterated that:
    • The department must follow its own circulars and guidelines.
    • Recovery beyond 20% requires specific reasons under exceptional circumstances.
  • The Court found:
    • No valid reasons were recorded for recovering amounts exceeding 20%.
    • Adjustment under Section 245 was done without prior notice or opportunity of hearing, violating procedure.
  • Direction:
    • The respondent must refund excess amount beyond 20% of disputed tax demand.
    • Refund to be processed within 8 weeks after verification.
    • Rectification application under Section 154 must also be decided within 8 weeks.

Important Clarifications

  • Recovery of tax demand during appeal is generally restricted to 20%.
  • Any deviation requires reasoned justification under CBDT guidelines.
  • Adjustment of refunds under Section 245 cannot be done without notice and opportunity of hearing.
  • Government authorities are bound by their own circulars; deviation can invalidate action.

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2021:DHC:2867-DB/MMH14092021CW101452021_210714.pdf

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