The High Court of Delhi has directed the release of excess tax adjustment by the Assessing Officer (AO) on the finding that the set-off of refund against the outstanding tax demands is limited to 20% of the disputed demand.
The decision came in response to a writ petition filed by Jindal Stainless Ltd. against the Deputy Commissioner of Income Tax & others. The case revolved around the adjustment of tax refunds against outstanding tax demands for various assessment years.
The High Court observed that the revenue authorities had adjusted more than the stipulated 20% of the disputed demand against the tax refund due for Assessment Year (AY) 2022-23. The bench pointed out that this adjustment was contrary to the Office Memorandum (OM) dated February 29, 2016, amended by OM dated July 31, 2017.
The petitioner, represented by Mr. Neeraj Jain with Mr. Aniket D. Agrawal and Mr. Saksham Singhal, contended that the adjustment made by the revenue authorities was not in line with the OM and it ignored the fact that the appeal was pending adjudication before the Commissioner of Income Tax (Appeals) (CIT(A)).
The respondent revenue was represented by Mr Shailendera Singh reiterated the findings of AO.
The bench stated that for adjustments exceeding 20% of the disputed demand, the concerned officer must provide reasons and satisfy themselves that the disputed tax cannot be collected through other means. The bench also emphasised that the adjustment must be made within the framework provided by the OM and the Income Tax Act, 1961.
The bench noted that the petitioner had brought the matter to the attention of the Deputy Commissioner of Income Tax through various communications. These communications highlighted the discrepancies in the adjustment process and requested that the disputed demands not be treated as defaults until the disposal of appeals before the CIT(A).
The court acknowledged that the revenue authorities had failed to provide the petitioner with adequate time to respond to the intimation proposing the adjustment. The bench cited the precedent set by the Bombay High Court in Hindustan Unilever v. DCIT [2015] 377 ITR 281 (Bom), which emphasised the need for the assessing officer to apply their mind and pass an appropriate order.
The bench thus held that the action of the revenue authorities in adjusting the refund against outstanding demands was not only hasty but also contrary to the law.
The division bench comprising Justice Rajiv Shakdher and Justice Girish Kathpalia directed the revenue authorities to release the excess amount, along with applicable interest, which exceeded 20% of the disputed demand for the relevant assessment years.
The petitioner had claimed that the excess amount available with the revenue authorities was Rs. 32,07,13,625. The court instructed the revenue authorities to calculate the exact excess amount and release it to the petitioner within four weeks of receiving a copy of the judgment.
The decision provides clarity on the limits and procedures for adjusting tax refunds against outstanding tax demands and underscores the importance of adhering to the provisions of the OM and the Income Tax Act while making such adjustments.
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