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2025 (3) TMI 1281 - HC - Income TaxAdjustment of refund payable to the petitioner against the outstanding demands - Petitioner claims that the amounts adjusted be refunded along with interest as applicable - HELD THAT - We are inclined to accept that adjustment of refund against outstanding demand may in some cases amount to a coercive measure as held in Kulbhushan Goyal v. Union of India and Ors 2018 (2) TMI 1271 - PUNJAB AND HARYANA HIGH COURT However as held by this court it is open for the appellate authority to further specify that the stay order is limited to interdicting other coercive measures for recovery and would not extend to adjustment of refunds. Clearly in case of ambiguity in this regard the apposite course for the parties would be to apply to the appellate authority for a clarification. In the present case none of the parties have chosen to take the said action. It is also material to note that the application filed by the petitioner before the learned ITAT seeking stay of recovery in respect of AY 2016-17 is pending and has not been decided as yet. This also lends this Court to understand that the interim orders passed by the learned ITAT are essentially to interdict the Revenue from taking any steps in the meanwhile. Apart from the above there is yet another reason why the Revenue s action for adjustment of refund against the outstanding demand for AY 2016-17 is unsustainable. Concededly the Revenue has not issued any prior notice or intimation u/s 245 for making any such adjustment. Thus the mandatory provisions for effecting an adjustment u/s 245 of the Act have not been followed. In Vijay Singh Kadan 2016 (6) TMI 217 - DELHI HIGH COURT this Court had not accepted that the Revenue could issue an ex post facto notice to cure the said defect. In Kshipra Jatana 2022 (5) TMI 1162 - DELHI HIGH COURT this Court had inter alia considered the non-issue of notice under Section 245 of the Act and had directed the Revenue to refund the amount adjusted against outstanding demands to another assessment year. We allow the present petition and set aside the action of the Revenue and adjust the refunds due to the petitioner for assessment year 2020-21 against the outstanding demands for the AYs 2016-17 2017-18 and 2018-19 and direct that the amount of refund determined be paid to the petitioner along with the applicable interest as expeditiously as possible and preferably within a period of eight weeks from date.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment include:
2. ISSUE-WISE DETAILED ANALYSIS Adjustment of Refunds Against Outstanding Demands The petitioner challenged the Revenue's action of adjusting the refund due for AY 2020-21 against outstanding demands for AYs 2016-17, 2017-18, and 2018-19. The petitioner argued that the ITAT had stayed the recovery of demands for AYs 2017-18 and 2018-19, and therefore, the refunds could not be adjusted against these demands. Relevant Legal Framework and Precedents The Court referred to Section 245 of the Income Tax Act, which mandates prior intimation to the assessee before adjusting refunds against outstanding demands. The Court also cited previous decisions, including Lease Plan India and Anr. v. Deputy Commissioner of Income Tax and Huawei Telecommunications India Company Private Limited v. Assistant Commissioner of Income Tax, which established that adjustments made in violation of stay orders or without notice are unlawful. Court's Interpretation and Reasoning The Court observed that the stay orders issued by the ITAT for AYs 2017-18 and 2018-19 explicitly barred recovery actions, which included adjustments of refunds. The Court emphasized that the Revenue's actions were contrary to the stay orders and violated Section 245, as no prior notice was given to the petitioner. Key Evidence and Findings The Court noted that the ITAT's order for AYs 2017-18 and 2018-19 included a condition for stay, which the Revenue disregarded by adjusting the refunds. Additionally, the Revenue failed to issue prior notice under Section 245 before making adjustments for AY 2016-17. Application of Law to Facts The Court applied the principles established in previous judgments, concluding that the Revenue's actions were unlawful due to the non-compliance with the ITAT's stay orders and the lack of prior notice under Section 245. The Court also recognized that an adjustment of refunds could constitute a coercive measure, as held by the Punjab and Haryana High Court in Kulbhushan Goyal v. Union of India and Ors. Treatment of Competing Arguments The Revenue argued that the stay orders did not preclude adjustments, as they only restrained coercive recovery actions. However, the Court rejected this argument, emphasizing that adjustments without notice or in violation of stay orders are impermissible. Conclusions The Court concluded that the adjustments made by the Revenue against the outstanding demands for AYs 2016-17, 2017-18, and 2018-19 were unlawful. The Court directed the Revenue to refund the adjusted amounts to the petitioner along with applicable interest. 3. SIGNIFICANT HOLDINGS Preserve Verbatim Quotes of Crucial Legal Reasoning The Court reiterated the principle that "an adjustment of refund against outstanding demand may in some cases amount to a coercive measure," aligning with the Punjab and Haryana High Court's view in Kulbhushan Goyal v. Union of India and Ors. Core Principles Established
Final Determinations on Each Issue The Court set aside the Revenue's adjustments of the petitioner's refunds against the outstanding demands for AYs 2016-17, 2017-18, and 2018-19. It directed the Revenue to refund the amounts with applicable interest within eight weeks.
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