Adjustment of tax refunds against pending demands is impermissible when a taxpayer has made partial payment and an appeal is pending, as per the CBDT Circular.

JUDGMENT :

Jitendra Jain, J.

1. Rule. The Rule is made returnable immediately at the request of and with the consent of the learned Counsel for the parties.

2. This Writ Petition is filed protesting against the adjustment of refund by the Respondent for assessment year 2014-15 against the alleged demand for assessment year2016-17.

3. On 30 December 2018, 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 said 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. We are informed that the appeal for assessment year 2016-17 is still pending as of today although a period of six years have lapsed.

4. Meanwhile, on 29 November 2019, 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. This appeal order resulted into 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. It is in this backdrop that the present proceedings has filed challenging the said adjustment.

5. Mr Gupta, learned Counsel for the Petitioner, submits that the said 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 said assessment year 2016-17 is pending as of today. He submitted that 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. Inspite of the said Circular and various decisions, the Respondent adjusted the refunds over and above the 20% which the Petitioner had already paid. He further submitted that 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 impugned order. He relied upon the decision of this Court in the case of Mahesh Mathuradas Ganatra Vs. Centralised Processing Center & Ors., [WP No. 13185/2024 dated 24 February 2025]. He therefore prayed that the adjustment of refund was contrary to the decision of this Court and the CBDT Circular.

6. Mr Suresh Kumar, learned Counsel for the Respondent, supported the action of the Respondents and submitted that since the full payment has not been made the Respondents were justified in adjusting the refund. He however has not controverted that the identical issue has been decided by this Court in the case of Mahesh Ganatra (supra).

7. We have heard learned Counsel for the Petitioner and Respondents.

8. There is no dispute that the Petitioner has made payment of 20% of the demand for assessment year 2016-17 and the appeal for the said assessment year is pending as of today. As per the CBDT Circular once payment of 20% of the demand is made, the balance demand would be stayed till the disposal of the appeal. Therefore, the adjustment of the refund for assessment year 2014-15 by the Respondent after the Petitioner has already paid 20% of the demand was not justified. This is contrary to their own Circular and the decision of this Court in the case of Mahesh Ganatra (supra). The Petitioner has raised this very specific ground in his reply to the proceedings under Section 245 of the Act and same has not been controverted. In our view, since the appeal for assessment year 2016-17 is pending and the Petitioner has made payment of 20%, the reasoning given by the Respondent that the balance demand has not been paid and therefore the adjustment is justified is erroneous and contrary to the d