Refund can be adjusted against outstanding tax demand by the Authority without invoking Section 245 of the Income Tax Act, 1961: High Court of Delhi

IN THE HIGH COURT OF DELHI AT NEW DELHI W.P.(C) 14536 2021 & CM APPLs.45715 716 2021 and 47343 2021 M S RAMESTH CONSTRUCTIONS PVT. LTD. ..... Petitioner Through: Mr. Avinash Trivedi Advocate DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 19DELHI & ORS. Through: Mr. Sunil Agarwal Advocate Respondents Date of Decision: 05th January 2022 HON BLE MR. JUSTICE MANMOHAN HON BLE MR. JUSTICE NAVIN CHAWLA MANMOHAN J of the Income Tax Act 1961of the Act the Assessing Officer has been conferred with the power to grant stay on recovery of outstanding tax demand subject to fulfillment of W.P.(C) 14536 2021 appropriate conditions. He states that in order to provide guidance and lay down principles regarding stay of demand the Central Board of Direct Taxes has issued various Circulars Notifications from time to time including Office Memorandums dated 29th February 2016 and 31st July 2017 prescribing that in cases where an assessee challenges the additions disallowances made in the assessment order by way of an appeal before the first appellate authority i.e. CIT(A) and during pendency thereof deposits 20% of the total disputed outstanding tax demand the assessing officer is empowered to grant stay of recovery of the balance outstanding demand. payment recovery of the standard rate of 20% of the disputed outstanding tax demand the assessing officer is mandated to grant stay on recovery of the balance disputed outstanding tax demand till the disposal of first appeal of the assessee unless the case of the assessee falls in the category mentioned in paragraph of the Office Memorandums dated 29 February 2016 and 31st July 2017. He states that the Respondents in violation of the provisions of the Office Memorandums recovered the disputed outstanding tax demand in excess of 20% by way of adjustment of refunds due for subsequent assessment years. He states that while 20% of the disputed amount for the Assessment Year 2013 14 was Rs.47 13 706 respondent adjusted Rs. 2 13 49 060 being 90.58% of the demand. Issue notice. Mr. Sunil Agarwal learned counsel accepts notice on behalf of the respondents. He states that he has the following instructions from the Assessing Officer which he has screen shared and which is reproduced as W.P.(C) 14536 2021 under: “Sir Kindly refer to the trailing mail vide which the said matter was allocated to you to defend the case before Hon’ble Delhi High The issue raised in this case is refund of excess amount deducted in excess of 20% of the outstanding demand. In this regard it is submitted that as per system there is no provision for refund of excess amount recovered but the same can be refunded through manual refund in light of ITBA assessment instruction no.11 o n the direction of Hon’ble Court. In view of the above it is requested to pray accordingly before the Court during the course of hearing on next date. Regards Sunil Prakash) Assistant Commissioner of Income Tax Circle 19(1) New Delhi.” This Court is of the view that the issue raised in the present writ petition is no longer res integra. This Court in Skyline Engineering ContractsPvt. Ltd. v. Deputy Commissioner of Income Tax Circle 22(2) W.P.(C) 6172 2021 and other connected matters has in similar facts held as under: “9. Having heard learned counsel for the parties this Court is of the view that the Government is bound to follow the rules and standards they themselves had set on pain of their action being W.P.(C) 14536 2021 invalidated.SCR 82 and Ramana Dayaram Shetty vs. International Airport Authority of India &Ors. 1979 SCR in accordance with paragraph 4(B) of 10. This Court is also of the view that the office memorandum dated 29th February 2016 read with office memorandum dated 25th August 2017 stipulate that the Assessing Officer shall normally grant stay of demand till disposal of the first appeal on payment of 20% of the disputed demand. In the event the Assessing Officer is of the view that the payment of a lump sum amount higher than 20% is warranted then the Assessing Officer will have to give reasons to show that the case falls in para 4(B) of the office memorandum dated 29th February 2016. 11. This Court finds that the order under Section 245 of the Act for adjustments of refunds as well as the order on stay of demand under Section 220(6) of the Act do not give any special particular reason as to why any amount in excess of 20% of the outstanding demand should be recovered from the petitioner assessee at this the office memorandum dated 29th February 2016. Consequently this Court is of the view that the respondent is entitled to seek pre deposit of only 20% of the disputed demand during the pendency of the appeal in accordance with paragraph 4(A) of the office memorandum dated 29th February 2016 as amended by the office memorandum dated 25th August 2017. 12.Consequently this Court is of the view that the respondents are entitled to seek pre deposit of only 20% of the disputed demand during the pendency of the appeals in accordance with paragraph 4(A) of the office memorandum dated 29th February 2016 as amended by the office memorandum dated 25th August 2017. 13. Accordingly the respondent no.1 is directed to refund the amount adjusted in excess of 20% of the disputed demand for the Assessment Year 2017 18 within four weeks…..” W.P.(C) 14536 2021 Keeping in view the aforesaid mandate of law as well as the fact that 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 2013 14 to the petitioner within four weeks. 6. With the aforesaid direction present writ petition and application stand disposed of. MANMOHAN J NAVIN CHAWLA J JANUARY 5 2022 W.P.(C) 14536 2021 

Summary: If no notice or opportunity of pre-decisional hearing has been provided to a party prior to adjustment of refund, then a refund can be adjusted against outstanding tax demand by the Authority without invoking Section 245 of the Income Tax Act, 1961 or without following the due procedure prescribed under the said Section. These were stated by Justice Manmohan in the case of M/S Ramesh Constructions Pvt. Ltd. vs. Deputy Commissioner of Income Tax Circle–19 (1) Delhi &amp; Ors. [W.P.(C) 14536/2021] on 05.01.2022. The facts of the case are that a writ petition was filed seeking a refund of Rs.1,66,35,954/- which was recovered in excess of 20% of the total disputed tax demand for the Assessment Year 2013-14 against the refunds due for various Assessment Years. Petitioner wants the Respondents to hear and dispose of the appeal filed against the order under Section 143(3) of the Income Tax Act, 1961. It was stated by the petitioner that under Section 220(6) of the Income Tax Act, 1961, the Assessing Officer has been conferred with the power to grant a stay on recovery of outstanding tax demand subject to fulfillment of appropriate conditions. The learned Counsel for the petitioner submitted that upon payment/recovery of the standard rate of 20% of the disputed outstanding tax demand, the assessing officer is mandated to grant a stay on recovery of the balance disputed outstanding tax demand till the disposal of first appeal of the assessee, unless the case of the assessee falls in the category mentioned in paragraph (B) of the Office Memorandums dated 29 July, 2017, prescribing that in cases where an assessee challenges the additions/ disallowances made in the assessment order by way of an appeal before the first appellate authority, i.e., CIT(A), and during pendency thereof deposits 20% of the total disputed outstanding tax demand, the assessing officer is empowered to grant stay of recovery of the balance outstanding demand. He stated that the Respondents in violation of the provisions of the Office Memorandums recovered the disputed outstanding tax demand in excess of 20% by way of adjustment of refunds due for subsequent assessment years. The learned counsel for respondents stated that according to the instructions from the Assessing Officer as per system, there is no provision for refund of excess amount (20% of outstanding demand) to be recovered, but the same can be refunded through manual refund in light of ITBA assessment instruction no.11 on the direction of Hon’ble Court.