Court upholds the procedural aspect of section 245 of the Income Tax Act: Delhi High Court

IN THE HIGH COURT OF DELHI AT NEW DELHI 57 & 61 W.P.(C) 10145 2021 & CM APPL. 31296 2021 RELIGARE FINVEST LIMITED ..... Petitioner Through Mr. Rohit Jain with Mr. Aniket D Agrawal DEPUTY COMMISSIONER OF INCOME TAX Respondent Through Mr.Sunil Agarwal Sr. Standing Counsel with Mr. Tushar Gupta Jr. Standing Counsel and Mr. Samarth Chaudhari W.P.(C) 10149 2021 & CM APPL. 31302 2021 RELIGARE FINVEST LIMITED Through Mr. Rohit Jain with Petitioner Mr. Aniket D Agrawal DEPUTY COMMISSIONER OF INCOME TAX Respondent Through Mr.Sunil Agarwal Sr. Standing Counsel with Mr. Tushar Gupta Jr. Standing Counsel and Mr. Samarth Chaudhari WPC 10145 2021 & WPC 10149 2021 Date of Decision: 14th September 2021 HON BLE MR. JUSTICE MANMOHAN HON BLE MR. JUSTICE NAVIN CHAWLA MANMOHAN J.The hearing has been done by way of video conferencing. Present writ petitions have been filed seeking refund of the Income Tax adjusted in excess of 20% of the disputed tax demand arising in the case of the Petitioner for the assessment years 2016 17 and 2017 18 against the refunds due for the Assessments Years 2018 19 and 2019 20 along with the applicable interest. Petitioner also seeks direction to the respondent to dispose of th July 2020 filed by the Petitioner under the application dated 10 Section 154 of the Income Tax Act 1961seeking rectification of the assessment order dated 17th June 2020 for the Assessment Year 2016 17. Learned counsel for the petitioner states that under Section 220(6) of the Act the Assessing Officer has been conferred with the power to grant stay on recovery of outstanding tax demand subject to fulfillment of 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 Notification from time to time including Office Memorandums dated th February 2016 and 31st July 2017 prescribing that in cases WPC 10145 2021 & WPC 10149 2021 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. Learned counsel for the petitioner submits that upon 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 disposal of first appeal of the assessee unless the case of the assessee falls in the category discussed in paragraphof the Office Memorandum dated February 2016. He states that the Income Tax Department in violation of the Office Memorandums dated 29 th February 2016 and 31st July 2017 recovered the disputed outstanding tax demand in excess of 20% by way of adjustment of refunds due for assessment years 2018 19 and 2019 20. He states that the while 20% of the disputed amount for the Assessment Year 2016 17 was Rs. 10 50 36 036 the respondent adjusted the entire tax demand of Rs. 54 20 04 981 excluding the interest under Section 220(2) of the Act. He also states that while 20% of the disputed amount for the Assessment Year 2017 18 was Rs. 48 54 63 006 the respondent recovered Rs. 54 99 73 789 . Learned counsel for the petitioner relies on the judgment dated rd August 2021 passed by this Court in Eko India Financial Services Pvt Ltd vs. ACIT WP(C) No.5819 2021 wherein under WPC 10145 2021 & WPC 10149 2021 similar circumstances the Respondents were directed to refund the amounts collected in excess of 20% of the disputed outstanding taxes to the Petitioner therein. Issue notice. 7. Mr. Sunil Agarwal learned counsel for the Revenue accepts notice. He states that he has not been able to receive instructions. On perusal of the paper book this Court finds that the issue raised in the present writ petitions is no longer res integra. This Court in Eko India Financial Services Pvt Ltd.has in a similar facts held as under: “….10.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 invalidated. SCR 82 and Ramana Dayaram Shetty vs. International Airport Authority of India & Ors. 1979 SCR1014]. 11.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. 12.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 WPC 10145 2021 & WPC 10149 2021 petitioner assessee at in accordance with this stage paragraph 4(B) of 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. 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….” 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 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. 10. 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. WPC 10145 2021 & WPC 10149 2021 11. Accordingly in view of the above the present writ petitions and application stand disposed of The order be uploaded on the website forthwith. Copy of the order be also forwarded to the learned counsel through e mail. MANMOHAN J NAVIN CHAWLA J SEPTEMBER 14 2021 WPC 10145 2021 & WPC 10149 2021 

Summary: It is the duty of the income tax authority to be governed by the mechanics of the Income Tax Act, 1961. A parallel situation was observed in the recent matter of Religare Finvest Ltd. v. Deputy Commissioner of Income Tax [W.P. (C) 10145/2021 &amp; CM APPL. 31296/2021] in the Delhi High Court. The final proceeding of the above case was held on September 14th, 2021, and it was taken up by a division bench, consisting of Justice Manmohan and Justice Navin Chawla. The facts, entailing the suit, are as follows. The matter had been filed in lieu for seeking Income Tax refund, inclusive of interest, adjusted in excess of 20% of the disputed tax demand arising in the case of the Petitioner for the assessment years 2016-17 and 2017-18 against the refunds due for the Assessments Years 2018-19 and 2019-20 along with the applicable interest. The counsel, on the behalf of the petitioners, states that as per section 220 (6) of the Income Tax Act, the Assessing Officer is ordained with the power to grant stay on recovery of outstanding tax demand subject to fulfillment of appropriate conditions. It was also stated that in order to provide guidance and lay down principles regarding stay of demand, the Central Board of Direct Taxes has issued various Circulars/ Notification from time to time including Office Memorandums. The counsel, on the behalf of petitioners, also stated that upon 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 disposal of first appeal of the assessee, unless the case of the assessee falls in the specific category, enshrined under the aforesaid memorandums. The counsel, to buttress the claims, also held reliance upon Eko India Financial Services Pvt Ltd vs. ACIT, [WP (C) No.5819/2021]. The case also entailed the same facts, and as a result, in the case, the respondents were directed to refund the amounts collected in excess 20% of the disputed outstanding taxes to the petitioners. The court, on hearing both the sides, came to a conclusion, and made a observation that the outstanding demand by the Authority has not been duly collected through the procedure prescribed under 245 of the Income Tax Act. Further, to add upon the same, the court also said that “no notice or opportunity of predecisional 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”.