The Bombay High Court has struck down the practice of adjusting tax refunds beyond the 20% demand payment as illegal and against CBDT Circulars.
The bench of Justice M.S. Sonak and Justice Jitendra Jain has observed that the adjustment of refund arising out of proceedings for assessment year 2014-15 against the demand for assessment year 2016-17 is unjustified and illegal.
The bench directed the income tax department to refund the erroneous adjustment made of refund for assessment year 2014-15 against demand for assessment year 2016-17 within four weeks.
The petitioner/assessee has challenged the adjustment of refund by the Income Tax Department for assessment year 2014-15 against the alleged demand for assessment year 2016-17.
An assessment order under Section 143(3) for the assessment year 2016-17 was passed and a demand of Rs.23,63,374 was raised. The assessment order was challenged by the Petitioner by filling an appeal with the Commissioner of Income Tax (Appeal).
Immediately after filing the said appeal, the Petitioner voluntarily paid an amount equivalent to 20% of the demand and filed proof of payment with the Respondents.
The appeal for assessment year 2016-17 is still pending as of today although a period of six years has lapsed.
The Commissioner of Income Tax (Appeal) for assessment year 2014-15 disposed of the appeal filed for the said assessment year i.e., assessment year 2014-15. The appeal order resulted in a refund for assessment year 2014-15.
The Petitioner received partial refund of Rs.12,61,620 on 23 October 2020. Upon enquiry, the Petitioner was informed that the balance refund has been adjusted against the demand for assessment year 2016-17.
The assessee contended that action of adjustment of refund for the assessment year 2014-15 against the demand for assessment year 2016- 17 is not justified since the Petitioner had already paid 20% of the demand of assessment year 2016-17 and the appeal for the assessment year 2016-17 is pending. Once 20% of the demand is paid then as per the Circular of the Respondent, the balance demand would be stayed till the disposal of the appeal.
The assessee contended that in spite of the Circular and various decisions, the department adjusted the refunds over and above the 20% which the Petitioner had already paid. This ground was specifically raised in response to proceedings under Section 245 of the Act but the same has not been dealt with in the order. He relied upon the decision of this Court in the case of Mahesh Mathuradas Ganatra Vs Centralised Processing Center & Ors. The adjustment of refund was contrary to the decision of this Court and the CBDT Circular.
The department supported the action of the income tax department and submitted that since the full payment has not been made the Respondents were justified in adjusting the refund.
The court held that the adjustment of the refund for assessment year 2014-15 by the Respondent after the Petitioner had already paid 20% of the demand was not justified.
Case Details
Case Title: Kishore Mohanlal Dingra Versus ACIT
Case No.: Writ Petition No. 2839 Of 2022
Date: 21 April 2025
Counsel For Petitioner: Rohit Gupta
Counsel For Respondent: Suresh Kumar
