2021 (12) TMI 144 - HC - Income Tax

Refund adjustments against disputed tax demands - Non invoking Section 245 - HELD THAT - As refunds have been adjusted against outstanding tax demand by the Authority without invoking Section 245 of the Act and/or without following the due procedure prescribed under the said Section inasmuch as no notice or opportunity of pre-decisional hearing had been provided to the petitioner prior to such adjustment of refund, this Court is of the opinion that the petitioner is entitled to refund of adjustments made in excess of 20% of the disputed tax demands. Consequently, this Court directs the respondents to verify the facts stated in the writ petition and if it finds them to be true and correct then refund the amount adjusted in excess of 20% of the disputed tax demands for the Assessment Year 2018-19 to the petitioner within four weeks.

Issues:
Refund of excess tax demand adjustment; Directions for pending appeal hearing.

Analysis:
The petitioner sought a refund of ?54,45,128/-, which was adjusted in excess of 20% of the total disputed tax demand for the Assessment Year 2018-19 against refunds due for subsequent years. Additionally, the petitioner requested directions for the appeal pending against the order dated 5th April, 2021 under Section 143(3) of the Income Tax Act, 1961. The petitioner argued that as per Section 220(6) of the Act and relevant Circulars/Notifications, the Assessing Officer can grant a stay on recovery of outstanding tax demand upon certain conditions. Specifically, it was highlighted that the assessing officer should grant a stay on the recovery of the balance disputed outstanding tax demand after payment of 20% of the disputed amount until the disposal of the first appeal, unless falling under specific categories mentioned in the Circulars. The petitioner contended that the respondents violated these provisions by adjusting the disputed outstanding tax demand in excess of 20% through refund adjustments for subsequent assessment years.

The Court noted that the issue raised in the petition had been previously addressed in a similar case, where it was held that the government must adhere to the rules and standards set by them, failing which their actions could be invalidated. Referring to the office memorandums, the Court emphasized that the Assessing Officer should normally grant a stay of demand until the disposal of the first appeal upon payment of 20% of the disputed demand. If the Assessing Officer deems a higher lump sum payment necessary, reasons justifying the same must be provided. The Court found that the orders for adjustments of refunds and stay of demand did not provide specific reasons for recovering amounts exceeding 20% of the demand, as required by the office memorandums. Consequently, the Court held that the respondents were only entitled to seek a pre-deposit of 20% of the disputed demand during the pendency of appeals.

Based on the legal provisions and precedents, the Court directed the respondents to refund the amount adjusted in excess of 20% of the disputed tax demands for the Assessment Year 2018-19 to the petitioner within four weeks. The Court emphasized that the adjustments made without following due procedures, such as providing notice or an opportunity for a pre-decisional hearing, were not valid. Therefore, the petitioner was entitled to the refund of excess adjustments made against the tax demands. The writ petition and application were disposed of in light of these directions.

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