Facts of the Case

The petitioner, Religare Finvest Limited, challenged the action of the Income Tax Department wherein refunds due for Assessment Years 2018-19 and 2019-20 were adjusted against outstanding tax demands for Assessment Years 2016-17 and 2017-18.

It was contended that recovery exceeded the permissible limit of 20% of the disputed demand, despite the pendency of appeals before the CIT(A). Additionally, the petitioner’s rectification application under Section 154 remained undisposed.

Issues Involved

  1. Whether the Income Tax Department can recover tax exceeding 20% of disputed demand during pendency of appeal.
  2. Whether adjustment of refunds under Section 245 without prior notice violates principles of natural justice.
  3. Whether the petitioner is entitled to refund of excess recovered amount.

Petitioner’s Arguments

  • CBDT guidelines mandate that only 20% of disputed demand can be recovered for grant of stay.
  • Recovery beyond 20% is arbitrary and contrary to Office Memorandums.
  • Refunds were adjusted without issuing prior notice or granting opportunity of hearing under Section 245.
  • Relied on precedent: Eko India Financial Services Pvt. Ltd. vs ACIT.

Respondent’s Arguments

  • Revenue accepted notice but submitted that instructions were awaited.
  • No substantial justification was provided for recovery exceeding 20% of disputed demand.

Court Findings / Observations

  • The issue is no longer res integra and is covered by earlier judgment.
  • CBDT Office Memorandums clearly provide that:
    • Stay must be granted upon payment of 20% of disputed demand.
    • Any higher recovery requires specific reasons under exceptional circumstances.
  • No reasons were recorded for excess recovery.
  • Adjustment under Section 245 without notice violates procedural safeguards and natural justice.
  • Government authorities are bound by their own circulars and policies.

Court Order / Final Decision

  • Respondent directed to refund excess amount recovered beyond 20% of disputed tax demand.
  • Refund to be processed within eight weeks.
  • Department directed to dispose of rectification application under Section 154 within eight weeks.
  • Writ petitions disposed accordingly.

Important Clarifications by Court

  • Recovery beyond 20% is permissible only with recorded reasons.
  • Adjustment of refunds requires prior notice and opportunity of hearing.
  • CBDT circulars are binding on tax authorities.
  • Assessee is entitled to protection during pendency of appeal.

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

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