2021 (9) TMI 781 - HC - Income Tax

Rectification of mistake u/s 154 - seeking refund of the Income Tax (including interest) adjusted in excess of 20% of the disputed tax demand arising in the case of the Petitioner - HELD THAT - As per mandate of law as well as the fact that refunds have been adjusted against outstanding tax demand by the Authority without following the procedure prescribed under Section 245 of the Act 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 respondent to verify the facts stated in the two writ petitions and if it finds them to be true and correct then to refund the amount adjusted in excess of 20% of the disputed tax demands for the Assessment Years 2016-17 and 2017-18 to the Petitioner within eight weeks. The respondent is also directed to dispose of petitioner s rectification application dated 10th July, 2020 seeking rectification of the assessment order dated 17th June, 2020 for Assessment Year 2016-17 within eight weeks - in view of the above, the present writ petitions and application stand disposed of.

Summary

Issues:
Seeking refund of Income Tax adjusted in excess of 20% of disputed tax demand, direction to dispose of application under Section 154 of Income Tax Act.

Analysis:
The petitioner filed writ petitions for refund of Income Tax adjusted in excess of 20% of disputed tax demand for assessment years 2016-17 and 2017-18, along with seeking direction to dispose of a rectification application under Section 154 of the Income Tax Act. The petitioner argued that the Assessing Officer has the power to grant stay on recovery of tax demand under Section 220(6) of the Act, subject to certain conditions. The Central Board of Direct Taxes issued Circulars prescribing guidelines for stay of demand, requiring deposit of 20% of disputed tax demand during appeal. The petitioner contended that the Income Tax Department violated these Circulars by adjusting refunds in excess of 20% of disputed tax demand.

The court noted that in a similar case, it had directed the government to refund amounts collected in excess of 20% of disputed taxes. Referring to previous judgments, the court emphasized that the government must adhere to its own rules and standards. The court highlighted that the Assessing Officer must grant stay of demand on payment of 20% of disputed demand, with reasons required for demanding a higher amount. The court found that no specific reasons were given for recovering amounts exceeding 20% of the demand, as per the office memorandum. Consequently, the court directed the respondent to refund the excess amount adjusted against the disputed demand for the relevant assessment year.

Considering the legal mandate and the lack of procedural adherence in adjusting refunds against outstanding tax demand without providing a pre-decisional hearing, the court held that the petitioner was entitled to a refund of adjustments made beyond 20% of the disputed tax demands. Accordingly, the court directed the respondent to verify the facts and refund the excess amounts adjusted for the specified assessment years within a stipulated timeframe. Additionally, the respondent was instructed to dispose of the petitioner's rectification application promptly. As a result of the above findings, the court disposed of the writ petitions and application, with instructions for uploading the order on the website and forwarding copies to the concerned parties.