Facts of the Case

The petitioner, Denave India Pvt. Ltd., filed a writ petition seeking issuance of a writ of mandamus directing the Income Tax Department to process and release a refund amounting to ₹10,75,56,607.

Additionally, the petitioner challenged notices issued under Section 245 of the Income Tax Act, 1961, whereby the department sought to adjust the refund due for Assessment Years (AY) 2017–18, 2018–19, and 2019–20 against an alleged tax demand for AY 2016–17.

The petitioner also sought interim relief restraining the department from recovering the disputed demand by adjusting it against the refunds due.

Issues Involved

  1. Whether the Income Tax Department was justified in adjusting refunds under Section 245 of the Income Tax Act, 1961 against alleged outstanding tax demand.
  2. Whether the petitioner was entitled to interest on delayed income tax refund, and if so, from which date such interest should be calculated.
  3. Whether the writ petition survives after the principal refund amount has been processed.

Petitioner’s Arguments

  • The petitioner contended that the refund due had not been processed despite entitlement.
  • The adjustment of refund against prior tax demand under Section 245 was challenged as improper.
  • It was argued that interest on refund should be granted from the date of the order dated 13.11.2019 until actual payment.

Respondent’s Arguments

  • The Income Tax Department relied on its affidavit stating compliance steps undertaken.
  • It was contended that interest on refund, if payable, should be calculated only up to the date of the order allowing the refund and not beyond.
  • The department maintained its authority under Section 245 to adjust refunds against outstanding demands.

Court’s Findings / Order

  • The Court noted that the Income Tax Department had agreed to process the refund in terms of its affidavit dated 12.10.2020.
  • It was observed that the principal issue of refund had already been resolved, and only the issue of interest remained.
  • The Court did not adjudicate the issue of interest, leaving the question of law open for determination in appropriate proceedings.
  • The writ petition was disposed of, granting liberty to the petitioner to pursue remedies regarding interest in accordance with law.

Important Clarification

  • The Court explicitly refrained from deciding the legal question regarding the period for which interest on income tax refund is payable.
  • The ruling clarifies that even after disposal of a writ petition, residual issues like interest can be pursued independently.

Sections Involved

  • Section 245, Income Tax Act, 1961 – Set-off of refunds against tax remaining payable
  • Articles 226 & 227, Constitution of India – Writ jurisdiction of High Courts

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2020:DHC:3006-DB/SID13102020CW32852020_210312.pdf

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