2021 (4) TMI 1165 - HC - Income Tax

Stay orders - Recovery proceedings - Amount recovered from petitioner over and above the amount as per instructions, memoranda, circular towards demand of tax - refund orders to the extent that they seek adjustment against demand for AY 2013- 14, and writ prohibiting and restraining recovery by adjustment of refunds against the demand for the AY 2013-14 is sought with a direction to refund of amounts referred to in prayer clauses (e) to (h) - HELD THAT - Set off of refund under the clause is to be done by using details of income tax demand lying against the person uploaded on to the system. The exercise of power to have set off / adjustment of refund is regulated by legislative provisions and instructions. The details referred to in the clause would have to correspond to the provisions and instructions operating. The tax demand for AY 2013-14 is in dispute and is pending before appellate authority. Having regard to instructions, circulars and memoranda issued from time to time, as referred to on behalf of petitioner, which are not disputed by the respondents, it appears to be expedient that the assessing officer refrains from recovering tax dues demanded for AY 2013-14. In the circumstances, a restraint is called for from recovering amount over and above, as per instructions, circulars and guidelines issued by CBDT, from time to time. The amount recovered from petitioner if is over and above as per instructions, circulars, the excess collection over and above the amount required for stay may have to be returned to petitioner and the refunds would not be adjusted till disposal of the appeal. The amount recovered from petitioner over and above the amount as per instructions, memoranda, circular towards demand of tax for the AY 2013-14 pending in appeal would be returned to the Petitioner with interest according to law and refunds of amounts over and above the amount as per instructions / guidelines may not be adjusted towards tax demand for AY 2013-14 till disposal of appeal.

Summary

Issues:
Adjustment of refund amounts against income tax demand for specific assessment years, legality of adjustment, violation of guidelines and circulars by assessing officer, impact of COVID-19 pandemic on financial situation, validity of stay order, entitlement to refund, binding nature of circulars issued by CBDT, technical difficulties in processing refunds, centralised processing of returns, authority of assessing officer to adjust refunds against outstanding demands.

Analysis:
The petitioner, an individual and proprietor of two companies, challenged the adjustment of refund amounts against the income tax demand for the assessment year 2013-14. The petitioner contended that the non-payment of refunds and their adjustment against the demand was arbitrary and illegal. The petitioner had applied for a stay on the recovery of the demanded tax, which was partially granted by the Assessing Officer while reserving the right to adjust refunds against the demand. Refund amounts for subsequent assessment years were also adjusted against the demand for AY 2013-14, leading to financial difficulties for the petitioner due to the impact of the COVID-19 pandemic.

The petitioner argued that the adjustment of refunds beyond 20% of the demanded amount was arbitrary and against the guidelines issued by the CBDT. The petitioner cited circulars and instructions regulating the stay to recovery of demand, emphasizing that the assessing officer should not act contrary to these guidelines. The petitioner relied on legal precedents, including a decision by the Punjab and Haryana High Court, to support the argument that refunds should only be adjusted to a certain extent against outstanding demands.

The respondents defended the actions of the assessing officer, stating that the adjustments were made in accordance with internal guidelines for recovering demands. They highlighted the Centralised Processing of Return of Income Scheme, which allows for the adjustment of refunds against remaining tax payable. The respondents argued that the actions of the assessing officer were justified under the provisions of the Income Tax Act and the scheme introduced for expeditious processing of returns.

The Court considered the provisions of the Income Tax Act, particularly Section 143(1A) and (1B), along with the Centralised Processing of Return of Income Scheme. The Court noted that the scheme allows for the set-off of refunds against outstanding demands but emphasized that such adjustments should be made in accordance with legislative provisions and instructions issued by the CBDT. The Court concluded that the assessing officer should refrain from recovering tax dues demanded for AY 2013-14, following the guidelines and circulars issued by the CBDT. The Court ordered the return of the excess amount recovered from the petitioner and directed that refunds should not be adjusted until the appeal is disposed of.

In summary, the Court declared the adjustment of refunds against the demand for AY 2013-14 beyond the prescribed limit as illegal and ordered the return of the excess amount to the petitioner. The judgment emphasized the importance of following guidelines and circulars issued by the CBDT in adjusting refunds against outstanding demands, ensuring a fair and lawful process for both the taxpayer and the tax authorities.