Tax refunds must not be adjusted without mandatory notice and adherence to procedural safeguards as stipulated in the Income Tax Act and CBDT guidelines.

Headnote:(A) Income Tax Act, 1961 - Section 143(3), Section 245 - Refund claims for Assessment Years 2020-21 and 2018-19 - Petitioner seeking refund of excess tax amounting to Rs.1,43,23,653 and Rs.53,85,886 respectively, asserted that recovery against a previous year's demand was done without notice - Court held that adjustment was made contrary to CBDT directives requiring notice and a 20% deposit for appeal - Petitioner entitled to the excess amount. (Paras 2-4)

(B) Procedural Fairness - Mandatory notice required before adjustment of refunds under Section 245 - Adjustment without adherence to procedural safeguards constitutes an infringement of a taxpayer’s rights.

Facts of the case:
The writ petition was filed seeking refund of excess taxes collected after arbitrary recovery of high-pitched demands from subsequent year refund claims, despite ongoing appeals.

Findings of Court:
Respondents to refund the amounts adjusted in excess of 20% of the demand as per CBDT memorandum, within 8 weeks.

Issues: Whether the recovery adjustments were lawful given the lack of notice and staying provisions.

Ratio Decidendi: Court emphasized the necessity of following procedural safeguards, mandating notice prior to any adjustments against refunds, as provided for in the Income Tax Act and CBDT guidelines.

Result: Writ petition disposed of as satisfied.

Table of Content
1. petitioner seeks tax refund. (Para 1)
2. recovery contested due to procedural violations. (Para 2 , 3)
3. respondents agree to refund excess amount. (Para 4)
4. writ petition disposed of as satisfied. (Para 5)

ORDER

Manmohan, J. (Oral)--Present writ petition has been filed by the Petitioner seeking a direction to the Respondents to refund the excess tax collected amounting to Rs.1,43,23,653/- for the Assessment Year 2020-21 and Rs.53,85,886/- for the Assessment Year 2018-19 forthwith.

2. Learned counsel for the Petitioner states that the Respondents have arbitrarily recovered 100% of the high-pitched disputed tax demand raised against the Petitioner for Assessment Year 2017-18 in an assessment framed under Section 143(3) of the Act from the Refund(s) under Section 143(1) in subsequent years i.e. Rs.1,43,23,653/- for Assessment Year 2020-21 and Rs.53,85,886/- for Assessment Year 2018-19. He states that this was done despite an application seeking stay of recovery of demand being made by the Petitioner in the pending appeal before the CIT(A). He also states that the adjustment was initiated without adhering to the mandatory requirement of issuance of notice to the Petitioner before an adjustment of refund under Section 245 of the Income Tax Act, 1961.

3. Learned counsel for the Petitioner points out that the recovery of the entire additional demand for Assessment Year 2017-18 against refunds of years 2020-2021 and 2018-19 is contrary to CBDT office memorandum dated 31st July 2017 which directs stay on recovery of demand upon deposit of 20% of the outstanding demand where an appeal is pending before the CIT(A).

4. Issue notice. Mr.SC Praty, learned counsel for respondents accepts notice. He, on instructions, states that the amount adjusted in excess of 20% demand in accordance with the CBDT Office Memorandum dated 31st July, 2017 shall be refunded to the petitioner within eight weeks.

5. The statement/undertaking given by learned counsel for respondents is accepted by this Court and the respondents are held bound by the same. In view thereof, the present writ petition along with pending applications stands disposed of as satisfied.

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IN THE HIGH COURT OF DELHIManmohan, Navin Chawla, JJ.Afflatus International - AppellantVersusAssistant Commissioner of Income Tax - RespondentW.P.(C) 13453 of 2021 & CM Appls. 42385-386 of 2021Decided On : 29-11-2021

Tax refunds must not be adjusted without mandatory notice and adherence to procedural safeguards as stipulated in the Income Tax Act and CBDT guidelines.

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IN THE HIGH COURT OF DELHI
Manmohan, Navin Chawla, JJ.
Afflatus International - Appellant
Versus
Assistant Commissioner of Income Tax - Respondent
W.P.(C) 13453 of 2021 & CM Appls. 42385-386 of 2021
Decided On : 29-11-2021