Facts of the Case

The petitioner, M/s BT India Private Limited, filed a writ petition challenging proceedings initiated through a notice dated 09 May 2020 under Section 245 of the Income Tax Act, 1961. The petitioner also sought refund of ₹2,69,04,670 arising from the finalized return for Assessment Year 2018–19 along with applicable interest.

Additionally, the petitioner requested directions for disposal of pending rectification applications and proceedings related to earlier assessment years.

The dispute arose because tax demands were raised despite pending rectification applications and remanded matters awaiting fresh verification by the Assessing Officer.

Issues Involved

  1. Whether the Revenue authorities can adjust tax refunds under Section 245 of the Income Tax Act, 1961 when rectification applications for earlier assessment years are pending.
  2. Whether adjustment of refund against disputed or potentially unsustainable tax demands is legally permissible.
  3. Whether delay in disposal of rectification applications violates taxpayer rights.

Petitioner’s Arguments

  • The tax demands mentioned in the notice dated 09 May 2020 were invalid and unsustainable.
  • For relevant assessment years:
    • Rectification applications were pending despite repeated reminders, or
    • Matters had been remanded for fresh verification.
  • Upon proper rectification, refunds would become due, or the tax demands would not survive.
  • The petitioner expressed apprehension that the Revenue would adjust refunds against illegal demands, leaving no effective remedy.

Respondent’s Arguments

  • The Revenue, represented by counsel, accepted notice but did not advance detailed arguments at this stage.
  • The matter was primarily addressed on procedural fairness and pending rectification issues.

Court’s Findings / Order

The Delhi High Court observed that certain rectification applications had been pending since July and December 2012, indicating significant delay.

The Court issued the following directions:

  1. The Respondent (Assessing Officer) shall decide the petitioner’s objection petition dated 11 June 2020 within two weeks by a reasoned order.
  2. The petitioner is granted liberty to pursue appropriate legal remedies if aggrieved by the decision.
  3. The notice issued under Section 245 (dated 09 May 2020) shall not be given effect for four weeks, enabling the petitioner to seek remedies.
  4. The writ petition was disposed of with these directions.

Important Clarification

  • The Court emphasized that adjustment of refunds cannot proceed mechanically when underlying tax demands are disputed or subject to rectification.
  • Authorities must first decide pending rectification applications before enforcing recovery or adjustment under Section 245.
  • Taxpayer rights to due process and fair adjudication were reinforced.

Sections Involved

  • Section 245, Income Tax Act, 1961 – Set-off of refunds against tax remaining payable
  • Principles relating to rectification proceedings under the Income Tax Act

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2020:DHC:2373-DB/MMH27072020CW45652020_182210.pdf


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