Facts of the Case

The petitioner, M/s Shree Krishna Steel Traders, challenged the recovery of income-tax demand during the pendency of its statutory appeal for Assessment Year 2021–22. The Assessing Officer had passed an order dated 19.01.2024, granting stay of the outstanding demand arising from the assessment order dated 26.12.2022, after the petitioner had already deposited 20% of the demand, in accordance with the applicable Office Memoranda.

Despite the subsisting stay, the Centralised Processing Centre (CPC) recovered an amount of ₹6,45,010 from the petitioner.

 

Assessee’s Contentions

The petitioner contended that:

  • Once 20% of the disputed demand was paid, the balance demand stood automatically stayed as per CBDT Office Memorandum dated 25.02.2016, as amended on 31.07.2017.
  • The Assessing Officer had expressly granted stay, which was operative at the time of recovery.
  • Recovery by CPC during the currency of a valid stay order was illegal and contrary to settled law.
  • Several judgments of the Delhi High Court mandate refund of amounts recovered in excess of 20% or in violation of stay orders.
  • The amount recovered after grant of stay was liable to be refunded with interest.

 

Department’s Stand

The Revenue submitted that:

  • The recovery of ₹6,45,010 had indeed taken place.
  • CPC could not be faulted as the petitioner allegedly failed to inform CPC about the stay order within the stipulated time.
  • According to the Department, the recovery was neither illegal nor arbitrary.

 

Findings of the Delhi High Court

The Division Bench of the Delhi High Court held that:

  • Recovery of tax demand during the operation of a valid stay order is impermissible.
  • In an era of complete computerisation and faceless administration, it is untenable for CPC to plead ignorance of a stay order passed by the Assessing Officer.
  • Blaming the assessee for failure to inform CPC of the stay was described as highly unprofessional.
  • Reliance was placed on the earlier judgment of the Delhi High Court in Dr. Priya Narula v CIT (2022 SCC OnLine Del 354).
  • The recovery of ₹6,45,010 was held to be erroneous, if not illegal.

 

Final Outcome

The writ petition was allowed in favour of the assessee. The Court directed that:

  • The amount of ₹6,45,010 recovered by CPC shall be refunded to the petitioner along with applicable interest within four weeks.
  • Assessing Officers must mandatorily communicate stay orders to CPC.
  • CPC shall neither issue recovery notices nor effect recovery where demand has been stayed.
  • All Principal Chief Commissioners of Income Tax across India were directed to issue necessary instructions to prevent recurrence of such recoveries.

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