Tax Dues Adjusted Against Refund| AO Can Retain Higher Amount Only If Taxpayer's Case Falls Under Para 4B(A) Of July 31, 2017 CBDT OM: Delhi HC

While considering a matter of adjustment of outstanding tax dues against the refund payable, the Delhi High Court directed the Revenue Department to refund amount adjusted in excess of 20% of total disputed tax demand for the preceding Assessment Year (AY) in the absence of specific order under Section 245 of the Income Tax Act requiring recovery of excess amount.

The Division Bench comprising of Justice Rajiv Shakdher and Justice Girish Kathpala observed that Revenue’s action of adjusting the refund due to Assessee for AY 2022-23 against the disputed demands for AY 2011-12, 2012-13 and 2014-15 is not only hasty, but also contrary to law.

“Under the Office Memorandum (“OM”) dated 29.02.2016, as amended by OM dated 31.07.2017, the AO should have, ordinarily, in terms of para 4A adjusted not more than 20% of the disputed demand, considering the fact that an appeal concerning the disputed demand was, admittedly, pending before the CIT(A). Higher amount can only be retained, only if, as per the aforementioned OMs, the assesssee’s case falls in the situation captured in para 4B (a)”, added the Bench.

The Bench relied on CBDT Office Memorandum dated February 29, 2016 wherein it was stipulated that Revenue should have ordinarily in terms of para 4A adjusted not more than 20% of the disputed amount in case the appeal is admittedly pending before CIT(A) and the excess amount can only be retained if the Assessee’s case falls in situation captured in para 4B(a).

Advocate Neeraj Jain appeared for the Assessee while Revenue was represented by Advocate Shailendera Singh.

The brief facts of the case were that for the AY 2022-23, Assessee filed return of income and claimed refund of Rs.52.78 Cr, however, Revenue adjusted the Rs.40.09 Cr out of the refund claimed in return of income against the outstanding demand for AY 2011-12, 2012-13 and 2014-15 i.e., in excess of 20% of the disputed demand.

The Assessee contended that adjustment in excess of 20% cannot be made in absence of order under Section 245 containing the reasons as to why the disputed tax cannot be collected by other means.

On the other hand, the Revenue contended that Assessee ought to have filed application under Section 220 to enable it to pass an appropriate order regarding outstanding deposit against the disputed demand.

After considering the submission, the Bench observed that action of the AO in adjusting the refund due to the petitioner/assessee for AY 2022-23, against the disputed demands for AYs 2011-12, 2012-13, and 2014-15 was not only hasty, but was also contrary to law.

The Bench also found that no material has been furnished by the respondent/revenue which would suggest that the petitioner/assessee’s case would fall within 4(B)(a) of the O.M dated Feb 29, 2016.

Accordingly, the High Court directed the Revenue Department to release the amount along with the applicable interest which is in excess of 20% of the disputed demand.

Cause Title: Jindal Stainless Ltd v. Deputy Commissioner of Income Tax and Ors. [Neutral Citation: 2023: DHC: 5962-DB]

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